LIBRARY        - 

THE  UNIVERSITY 
OF  CALIFORNIA 

SANTA  BARBARA 


PRESENTED  BY 

Dame   Judith  Anderson 


THE 
STOCK  MARKET  BAROMETER 


1915  1916  1917  1913  1919  1920  1921  1922  1923  1924  1925  1926 


1903  1904  1905  1906  1907  1908  1909  1910  1911  1912  1913  1914 


1897  1898  1899  1900  1901  1902  1903  1904  190S  1906  1907  1908  1909  1910  1911  1912  1913  1914  1915  1916  1917  1918  1919  1920  1921  1922  1923  1924  1923  1926 

(Copyriyht  by  Dow,  Jones  &  Co.,  1926) 

THE  DOW-JONES  AVERAGES— 1897-1925 


THE 

STOCK    MARKET 
BAROMETER 


A  Study  oflts  Forecast  Value  Based  on 

Charles  H.  Dow's  Theory  of  the 

Price  Movement.    With    an 

Analysis  of  the  Market 

and    Its    History 

Since  1897 


By 
WILLIAM  PETER  HAMILTON 

Editor  of  The  Wall  Street  Journal 


HARPER   fcf   BROTHERS   PUBLISHERS 
NEW  YORK  AND   LONDON 


THS  STOCK  MARKET  BABOMETKB 

Copyright,  1922 
By  Harper  &  Brothers 
Printed  in  the  U.  S.  A. 


B-A 

Ninth  Printing 


To 

My  Old  Friend  and  Colleague 

HUGH  BANCROFT 

without  whose  suggestion  and  encouragement 

this  book  would  not  have 

been  written 


LIST  OF  CONTENTS 

CHAPTER  PAGE 

I.  CYCLES  AND  STOCK  MARKET  RECORDS 1 

II.  WALL  STREET  OF  THE  MOVIES.... 9 

III.  CHARLES  H.  Dow,  AND  His  THEORY 21 

IV.  Dow's  THEORY,  APPLIED  TO  SPECULATION 30 

V.  MAJOR  MARKET  SWINGS 40 

VI.  A  UNIQUE  QUALITY  OF  FORECAST 49 

VII.  MANIPULATION  AND  PROFESSIONAL  TRADING 60 

VIII.  MECHANICS  OF  THE  MARKET 73 

IX.  "WATER"  IN  THE  BAROMETER 87 

X.  "A    LITTLE    CLOUD    OUT   OF   THE    SEA,    LIKE    A    MAN'S 

HAND"— 1906 101 

XI.  THE  UNPUNCTURED  CYCLE 115 

XII.  FORECASTING  A  BULL  MARKET — 1908-1909 128 

XIII.  NATURE  AND  USES  OF  SECONDARY  SWINGS 142* 

XIV.  1909,  AND  SOME  DEFECTS  OF  HISTORY 154 

XV.  A  "LINE"  AND  AN  EXAMPLE— 1914 172 

XVI.  AN  EXCEPTION  TO  PROVE  THE  RULE 185 

XVII.  ITS  GREATEST  VINDICATION — 1917 196 

XVIII.  WHAT  REGULATION  DID  TO  OUR  RAILROADS 208 

XIX.  A  STUDY  IN  MANIPULATION — 1900-1 221 

XX.  SOME  CONCLUSIONS — 1910-14  237 

XXI.  RUNNING  TRUE  TO  FORM— 1922-1925 250 

XXII.  SOME  THOUGHTS  FOR  SPECULATORS 262 

APPENDIX  :  RECORD  OF  THE  DOW-JONES  AVERAGES 281 


PREFACE 

A  preface  is  too  often  an  apology,  or  at  best  an 
explanation  of  what  should  be  sufficiently  clear.  This 
book  requires  no  apology,  and  if  it  fails  to  explain 
itself  the  fault  is  that  of  the  author.  But  acknowl- 
edgment must  be  made  most  gratefully  to  Clarence 
W.  Barron,  president  of  Dow,  Jones  &  Co.,  and  to 
Joseph  Cashman,  manager  of  that  great  financial 
news  service,  for  permission  to  use  the  indispensable 
Dow-Jones  stock-price  averages,  and  to  my  old  com- 
rade in  Wall  Street  newspaper  work,  Charles  F. 
Renken,  compiler  of  those  averages,  for  the  charts 
here  used  in  illustration. 

W.  P.  H. 


THE 
STOCK  MARKET  BAROMETER 


THE 
STOCK  MARKET  BAROMETER 

Chapter  I 

CYCLES   AND   STOCK  MARKET   RECORDS 

AJ  English  economist  whose  unaffected  humanity 
always  made  him  remarkably  readable,  the  late 
William  Stanley  Jevons,  propounded  the  theory  of  a 
connection  between  commercial  panics  and  spots  on 
the  sun.  He  gave  a  series  of  dates  from  the  beginning 
of  the  seventeenth  century,  showing  an  apparent  coinci- 
dence between  the  two  phenomena.  It  is  entirely 
human  and  likable  that  he  belittled  a  rather  ugly  com- 
mercial squeeze  of  two  centuries  ago  because  there 
were  not  then  a  justifying  number  of  spots  on  the  sun. 
Writing  in  the  New  York  Times  early  in  1905,  in  com- 
ment on  the  Jevons  theory,  I  said  that  while  Wall 
Street  in  its  heart  believed  in  a  cycle  of  panic  and  pros- 
perity, it  did  not  care  if  there  were  enough  spots  on  the 
sun  to  make  a  straight  flush.  Youth  is  temerarious 
and  irreverent.  Perhaps  it  would  have  been  more 
polite  to  say  that  the  accidental  periodic  association 
proved  nothing,  like  the  exact  coincidence  of  presi- 
dential elections  with  leap  years. 

Cycles  and  the  Poets 

Many  teachers  of  economics,   and  many  business 
men  without  pretension  even  to  the  more  modest  title 

x 


2       THE  STOCK  MARKET  BAROMETER 

of  student,  have  a  profound  and  reasonable  faith  in  a 
cycle  in  the  affairs  of  men.  It  does  not  need  an  under- 
standing of  the  Einstein  theory  of  relativity  to  see 
that  the  world  cannot  possibly  progress  in  a  straight 
line  in  its  moral  development.  The  movement  would 
be  at  least  more  likely  to  resemble  the  journey  of  our 
satellite  around  the  sun,  which,  with  all  its  planetary 
attendants,  is  moving  toward  the  constellation  of 
Vega.  Certainly  the  poets  believe  in  the  cycle  theory. 
There  is  a  wonderful  passage  in  Byron's  "Childe 
Harold"  which,  to  do  it  justice,  should  be  read  from 
the  preceding  apostrophe  to  Metella's  Tower.  This 
was  Byron's  cycle : 

"Here  is  the  moral  of  all  human  tales, 
'Tis  but  the  same  rehearsal  of  the  past ; 
First  freedom  and  then  glory ;  when  that  fails 
Wealth,  vice,  corruption,  barbarism  at  last, 
And  history,  with  all  her  volumes  vast, 
Hath  but  one  page." 

There  seems  to  be  a  cycle  of  panics  and  of  times  of 
prosperity.  Anyone  with  a  working  knowledge  of 
modern  history  could  recite  our  panic  dates — 1837, 
1857,  *866  (Overend-Gurney  panic  in  London),  1873, 
1884,  1893,  1907,  if  he  might  well  hesitate  to  add  the 
deflation  year  of  1920.  Panics,  at  least,  show  a  vari- 
able interval  between  them,  from  ten  to  fourteen  years, 
with  the  intervals  apparently  tending  to  grow  longer. 
In  a  subsequent  chapter  we  shall  analyze  this  cycle 
theory,  to  test  its  possible  usefulness. 


CYCLES  AND  STOCK  MARKET  RECORDS    3 

Periodicity 

But  the  pragmatic  basis  for  the  theory,  a  working 
hypothesis  if  nothing  more,  lies  in  human  nature  itself. 
Prosperity  will  drive  men  to  excess,  and  repentance  for 
the  consequence  of  those  excesses  will  produce  a  corre- 
sponding depression.  Following  the  dark  hour  of 
absolute  panic,  labor  will  be  thankful  for  what  it  can 
get  and  will  save  slowly  out  of  smaller  wages,  while 
capital  will  be  content  with  small  profits  and  quick 
returns.  There  will  be  a  period  of  readjustment  like 
that  which  saw  the  reorganization  of  most  of  the 
American  railroads  after  the  panic  of  1893.  Pres- 
ently we  wake  up  to  find  that  our  income  is  in  excess 
of  our  expenditure,  that  money  is  cheap,  that  the 
spirit  of  adventure  is  in  the  air.  We  proceed  from 
dull  or  quiet  business  times  to  real  activity.  This 
gradually  develops  into  extended  speculation,  with 
high  money  rates,  inflated  wages  and  other  familiar 
symptoms.  After  a  period  of  years  of  good  times  the 
strain  of  the  chain  is  on  its  weakest  link.  There  is  a 
collapse  like  that  of  1907,  a  depression  foreshadowed 
in  the  stock  market  and  in  the  price  of  commodities, 
followed  by  extensive  unemployment,  often  an  actual 
increase  in  savings-bank  deposits,  but  a  complete 
absence  of  money  available  for  adventure. 

Need  for  a  Barometer 

Read  over  Byron's  lines  again  and  see  if  the  parallel 
is  not  suggestive.  What  would  discussion  of  business 


4       THE  STOCK  MARKET  BAROMETER 

be  worth  if  we  could  not  bring  at  least  a  little  of  the 
poet's  imagination  into  it?  But  unfortunately  crises 
are  brought  about  by  too  much  imagination.  What 
we  need  are  soulless  barometers,  price  indexes  and 
averages  to  tell  us  where  we  are  going  and  what  we 
may  expect.  The  best,  because  the  most  impartial, 
the  most  remorseless  of  these  barometers,  is  the 
recorded  average  of  prices  in  the  stock  exchange. 
With  varying  constituents  and,  in  earlier  years,  with  a 
smaller  number  of  securities,  but  continuously  these 
have  been  kept  by  the  Dow-Jones  news  service  for 
thirty  years  or  more. 

There  is  a  method  of  reading  them  which  has  been 
fruitful  of  results,  although  the  reading  has  on  occa- 
sion displeased  both  the  optimist  and  the  pessimist. 
A  barometer  predicts  bad  weather,  without  a  present 
cloud  in  the  sky.  It  is  useless  to  take  an  axe  to  it 
merely  because  a  flood  of  rain  will  destroy  the  crop  of 
cabbages  in  poor  Mrs.  Brown's  backyard.  It  has  been 
my  lot  to  discuss  these  averages  in  print  for  many 
years  past,  on  the  tested  theory  of  the  late  Charles  H. 
Dow,  the  founder  of  The  Wall  Street  Journal.  It 
might  not  be  becoming  to  say  how  constantly  helpful 
the  analysis  of  the  price  movement  proved.  But  one 
who  ventures  on  that  discussion,  who  reads  that  bar- 
ometer, learns  to  keep  in  mind  the  natural  indignation 
against  himself  for  the  destruction  of  Mrs.  Brown's 
cabbages. 

Dow's  Theory 

Dow's  theory  is  fundamentally  simple.  He  showed 
that  there  are,  simultaneously,  three  movements  in 


CYCLES  AND  STOCK  MARKET  RECORDS    5 

progress  in  the  stock  market.  The  major  is  the  pri- 
mary movement,  like  the  bull  market  which  set  in  with 
the  re-election  of  McKinley  in  1900  and  culminated  in 
September,  1902,  checked  but  not  stopped  by  the 
famous  stock  market  panic  consequent  on  the  Northern 
Pacific  corner  in  1901;  or  the  primary  bear  market 
which  developed  about  October,  1919,  culminating 
June- August,  1921. 

It  will  be  shown  that  this  primary  movement  tends 
to  run  over  a  period  of  at  least  a  year  and  is  generally 
much  longer.  Coincident  with  it,  or  in  the  course  of 
it,  is  Dow's  secondary  movement,  represented  by  sharp 
rallies  in  a  primary  bear  market  and  sharp  reactions 
in  a  primary  bull  market.  A  striking  example  of  the 
latter  would  be  the  break  in  stocks  on  May  9,  1901. 
In  like  secondary  movements  the  industrial  group 
(taken  separately  from  the  railroads)  may  recover 
much  more  sharply  than  the  railroads,  or  the  railroads 
may  lead,  and  it  need  hardly  be  said  that  the  twenty 
active  railroad  stocks  and  the  twenty  industrials,  mov- 
ing together,  will  not  advance  point  for  point  with  each 
other  even  in  the  primary  movement.  In  the  long 
advance  which  preceded  the  bear  market  beginning 
October,  1919,  the  railroads  worked  lower  and  were 
comparatively  inactive  and  neglected,  obviously  be- 
cause at  that  time  they  were,  through  government 
ownership  and  guaranty,  practically  out  of  the  specu- 
lative field  and  not  exercising  a  normal  influence  on 
the  speculative  barometer.  Under  the  resumption  of 
private  ownership  they  will  tend  to  regain  much  of 
their  old  significance.  t 


6       THE  STOCK  MARKET  BAROMETER 

The  Theory's  Implications 

Concurrently  with  the  primary  and  secondary  move- 
ment of  the  market,  and  constant  throughout,  there 
obviously  was,  as  Dow  pointed  out,  the  underlying 
fluctuation  from  day  to  day.  It  must  here  be  said  that 
the  average  is  deceptive  for  speculation  in  individual 
stocks.  What  would  have  happened  to  a  speculator 
who  believed  that  a  secondary  reaction  was  due  in 
May,  1901,  as  foreshadowed  by  the  averages,  if  of  all 
the  stocks  to  sell  short  on  that  belief  he  had  chosen 
Northern  Pacific?  Some  traders  did,  and  they  were 
lucky  if  they  covered  at  sixty-five  points  loss. 

Dow's  theory  in  practice  develops  many  implica- 
tions. One  of  the  best  tested  of  them  is  that  the  two 
averages  corroborate  each  other,  and  that  there  is 
never  a  primary  movement,  rarely  a  secondary  move- 
ment, where  they  do  not  agree.  Scrutiny  of  the  aver- 
age figures  will  show  that  there  are  periods  where  the 
fluctuations  for  a  number  of  weeks  are  within  a  narrow 
range;  as,  for  instance,  where  the  industrials  do  not 
sell  below  seventy  or  above  seventy-four,  and  the  rail- 
roads above  seventy-seven  or  below  seventy-three. 
This  is  technically  called  "making  a  line,"  and  experi- 
ence shows  that  it  indicates  a  period  either  of  distribu- 
tion or  of  accumulation.  When  the  two  averages  rise 
above  the  high  point  of  the  line,  the  indication  is 
strongly  bullish.  It  may  mean  a  secondary  rally  in  a 
bear  market;  it  meant,  in  1921,  the  inauguration  of  a 
primary  bull  movement,  extending  into  1922. 

If,  however,  the  two  averages  break  through  the 

77 


CYCLES  AND  STOCK  MARKET  RECORDS    7 

lower  level,  it  is  obvious  that  the  market  for  stocks 
has  reached  what  meteorologists  would  call  "satura- 
tion point."  Precipitation  follows — a  secondary  bear 
movement  in  a  bull  market,  or  the  inception  of  a  pri- 
mary downward  movement  like  that  which  developed 
in  October,  1919.  After  the  closing  of  the  Stock  Ex- 
change, in  1914,  the  number  of  industrials  chosen  for 
comparison  was  raised  from  twelve  to  twenty  and  it 
seemed  as  if  the  averages  would  be  upset,  especially 
as  spectacular  movements  in  stocks  such  as  General 
Electric  made  the  fluctuations  in  the  industrials  far 
more  impressive  than  those  in  the  railroads.  But 
students  of  the  averages  have  carried  the  twenty  chosen 
stocks  back  and  have  found  that  the  fluctuations  of  the 
twenty  in  the  previous  years,  almost  from  day  to  day, 
coincided  with  the  recorded  fluctuations  of  the  twelve 
stocks  originally  chosen. 

Dow-Jones  Averages  the  Standard 

The  Dow- Jones  average  is  still  standard,  although 
it  has  been  extensively  imitated.  There  have  been 
various  ways  of  reading  it ;  but  nothing  has  stood  the 
test  which  has  been  applied  to  Dow's  theory.  The 
weakness  of  every  other  method  is  that  extraneous 
matters  are  taken  in,  from  their  tempting  relevance. 
There  have  been  unnecessary  attempts  to  combine  the 
volume  of  sales  and  to  read  the  average  with  refer- 
ence to  commodity  index  numbers.  But  it  must  be 
obvious  that  the  averages  have  already  taken  those 
things  into  account,  just  as  the  barometer  considers 


8       THE  STOCK  MARKET  BAROMETER 

everything  which  affects  the  weather.  The  price  move- 
ment represents  the  aggregate  knowledge  of  Wall 
Street  and,  above  all,  its  aggregate  knowledge  of  com- 
ing events. 

Nobody  in  Wall  Street  knows  everything.  I  have 
known  what  used  to  be  called  the  "Standard  Oil 
crowd,"  in  the  days  of  Henry  H.  Rogers,  consistently 
wrong  on  the  stock  market  for  years  together.  It  is 
one  thing  to  have  "inside  information"  and  another 
thing  to  know  how  stocks  will  act  upon  it.  The  market 
represents  everything  everybody  knows,  hopes,  be- 
lieves, anticipates,  with  all  that  knowledge  sifted  down 
to  what  Senator  Dolliver  once  called,  in  quoting  a  Wall 
Street  Journal  editorial  in  the  United  States  Senate, 
the  bloodless  verdict  of  the  market  place. 


WALL  STREET  OF  THE  MOVIES 

WE  shall  prove,  by  strict  analysis,  the  fidelity  of 
the  stock  market  barometer,  tested  over  a 
long  period  of  years.  With  the  aid  of  Dow's  theory 
of  the  price  movement  we  shall  examine  the  major 
swings  upwards  or  downwards,  extending  from  less 
than  a  year  to  three  years  or  more;  their  secondary 
interruption  in  reactions  or  rallies,  as  the  case  may  be ; 
and  the  relatively  unimportant  but  always  present  daily 
fluctuation.  We  shall  see  that  all  these  movements 
are  based  upon  the  sum  of  Wall  Street's  knowledge 
of  the  business  of  the  country;  that  they  have  no  more 
to  do  with  morality  than  the  precession  of  the  equi- 
noxes, and  that  manipulation  cannot  materially  deflect 
the  barometer. 

Movies  and  Melodrama 

But,  to  judge  from  some  of  my  correspondence,  the 
case  must  not  even  be  argued,  because  it  is  alleged 
that  Wall  Street  does  not  come  into  court  with  clean 
hands.  It  has  seemed,  in  the  past,  at  least  discour- 
aging to  point  out  how  the  dispassionate,  the  almost 
inhuman,  movement  of  the  market  has  nothing  what- 
ever to  do  with  the  occasional  scandals  which  disfigure 
the  record  of  every  market  for  anything  anywhere. 
But  the  proportion  of  people  who  only  feel  is,  to  those 
who  think,  overwhelming.  The  former  are  in  such  a 

9 


io      THE  STOCK  MARKET  BAROMETER 

majority  that  concession  must  be  made  to  them,  al- 
though I  still  decline  to  apologize  for  the  stock  market. 
I  should  as  soon  think  of  apologizing  for  the  meridian 
of  Greenwich.  To  quote  one  of  the  best  known  of 
Grover  Cleveland's  useful  platitudes,  it  is  a  condition 
and  not  a  theory  which  confronts  us. 

In  the  popular  imagination  there  is  a  fearful  and 
wonderful  picture  of  Wall  Street — something  we  may 
call  the  Wall  Street  of  the  movies.  What  the  English 
call  the  cinema  is  our  modern  substitute  for  the  con- 
ventional melodrama  of  our  grandfathers.  Its  char- 
acters are  curiously  the  same.  Its  villains  and  vampires 
are  not  like  anything  in  real  life;  but  they  behave  as 
consistent  villains  or  vampires  ought  to  behave  if  they 
are  to  satisfy  critics  who  never  saw  a  specimen  of 
either.  Many  years  ago  Jerome  K.  Jerome  wrote  a 
chapter  on  stage  law.  He  showed  that  on  the  English 
stage  the  loss  of  a  three-and-six-penny  marriage  certi- 
ficate invalidated  the  marriage.  In  the  event  of  death 
the  property  of  the  testator  went  to  the  person  who 
could  secure  possession  of  the  will.  If  the  rich  man 
died  without  a  will  the  property  went  to  the  nearest 
villain.  In  those  days  lawyers  looked  like  lawyers — 
on  the  stage.  The  detective  looked  like  a  gimlet-eyed 
sleuth,  and  a  financier  looked  so  like  a  financier  that 
it  positively  seemed  to  hurt  his  face. 

Financiers  of  Fiction 

Our  modern  financier  on  the  screen  looks  like  that, 
especially  in  the  "close-ups."  But  he  is  no  new  creation. 


WALL  STREET  OF  THE  MOVIES         1 1 

I  remember  reading  a  magazine  story,  a  score  of  years 
ago,  of  a  stock  market  coup  by  a  great  "manipulator," 
of  the  type  of  James  R.  Keene.  The  illustrations  were 
well  drawn  and  even  thrilling.  In  one  of  them  Keene, 
or  his  prototype,  was  depicted  bending  dramatically 
over  a  Consolidated  Stock  Exchange  ticker!  It  is 
to  be  presumed  that  he  was  smashing  the  market  with 
ten-share  lots.  Only  a  Keene  could  do  it,  and  only  a 
Keene  of  the  movies  at  that.  Doubtless  the  author  of 
the  story,  Mr.  Edwin  Lefevre,  who  was  dissipating 
his  talents  in  hazy  financial  paragraphs  for  the  New 
York  Globe  at  that  time,  felt  that  he  had  been  artis- 
tically frustrated.  But  perhaps  he  had  himself  to 
thank.  Here  is  his  own  description  of  such  a  manip- 
ulator. It  is  in  a  short  story  published  in  1901,  called 
The  Break  in  Turpentine: 

"Now,  manipulators  of  stocks  are  born,  not  made.  The  art 
is  most  difficult,  for  stocks  should  be  manipulated  in  such  wise 
that  they  will  not  look  manipulated.  Anybody  can  buy  stocks 
or  can  sell  them.  But  not  every  one  can  sell  stocks  and  at  the 
same  time  convey  the  impression  that  he  is  buying  them,  and 
that  prices  therefore  must  inevitably  go  much  higher.  It  re- 
quires boldness  and  consummate  judgment,  knowledge  of  tech- 
nical stock  market  conditions,  infinite  ingenuity  and  mental 
agility,  absolute  familiarity  with  human  nature,  a  careful  study 
of  the  curious  psychological  phenomena  of  gambling  and  long 
experience  with  the  Wall  Street  public  and  with  the  wonderful 
imagination  of  the  American  people ;  to  say  nothing  of  knowing 
thoroughly  the  various  brokers  to  be  employed,  their  capabilities, 
limitations  and  personal  temperaments;  also,  their  price." 

That  is  professedly  fiction,  and,  incidentally,  more 
true  and  respectable  as  art  than  the  product  of  the, 


12      THE  STOCK  MARKET  BAROMETER 

i 

melodrama  or  the  screen.  It  lays  no  stress  on  the 
deeper  knowledge  of  values  and  business  conditions 
necessary  to  assure  the  existence  of  the  kind  of  market 
which  alone  makes  manipulation  possible.  Truth  is 
stranger  than  fiction,  and  perhaps  harder  to  write, 
although  the  remark  is  open  to  an  obvious  retort. 

Silk  Hats  and  Strained  Faces 

Not  long  ago  there  appeared  a  letter  to  a  popular 
newspaper,  notorious  for  what  may  be  called  the  anti- 
Wall  Street  complex.  It  professed  to  give,  in  a  series 
of  gasps,  the  impressions  of  a  Western  stranger  on 
visiting  Wall  Street.  One  of  these  "flashlights"  was, 
"silk  hats  and  strained  faces."  Let  me  be  exact.  I 
have  seen  a  silk  hat  in  Wall  Street.  It  was  when 
Mayor  Seth  J-ow  opened  the  new  Stock  Exchange  in 
1901.  My  stenographer,  bless  her  honest  heart,  said 
it  was  real  stylish.  But  financiers  of  the  movies  tend 
to  wear  silk  hats,  just  as  the  heroes  in  melodrama, 
even  when  reduced  to  penury  and  rags,  wore  patent- 
leather  shoes.  A  screen  financier  without  a  silk  hat 
would  be  like  an  egg  without  salt.  We  cannot  other- 
wise infer,  as  we  are  required,  that  he  is  a  bad  egg. 

"A  Long  Way  Back  for  Soup" 

Only  a  few  years  ago  there  was  a  severely  localized 
scandal  over  a  "corner"  in  a  stock  called  Stutz  Motor, 
for  which  no  true  market  had  been  established.  No- 
body was  hurt  except  a  few  speculators  who  chose 
to  sell  the  thing  short.  They  paid  up  without  whin- 


WALL  STREET  OF  THE  MOVIES         13 

ing.  But  it  formed  an  irresistible  text  for  a  popular 
attack  upon  Wall  Street.  One  of  the  New  York  news- 
papers said  that  the  incident  was  only  in  a  piece  with 
"the  Metropolitan  Traction  corruptionists,  the  New 
Haven  wreckers,  the  Rock  Island  wreckers,  and"  what 
it  called,  with  a  free  rendering  of  history,  "the  life 
insurance  corruptionists."  This  was  in  a  newspaper 
professing  to  sell  news.  It  did  not  tell  its  readers  that 
the  last  of  the  Metropolitan  Street  Railway  financing 
happened  twenty  years  before.  Even  the  foolish  and 
indefensible  capitalization  of  the  surface  lines  of  New 
York,  unloaded  on  what  was  then  called  the  Inter- 
borough  Metropolitan  Company,  was  fifteen  years  old. 
The  life  insurance  investigation,  which,  incidentally, 
neither  charged  nor  proved  "corruption,"  went  back 
sixteen  years.  Even  the  last  essay  in  misjudged  New 
Haven  financing,  a  comparatively  minor  matter,  oc- 
curred fully  eleven  years  earlier ;  that  of  Rock  Island, 
nineteen  years  before;  while  that  favorite  charge 
against  Wall  Street,  the  recapitalization  of  the  Chicago 
&  Alton,  was  carried  through  in  1899  and  not  a  soul 
saw  anything  wrong  with  it  until  1907.  I  suppose  I 
write  myself  down  a  hopeless  reactionist  when  I  say 
that,  with  the  fullest  knowledge  of  the  facts,  I  cannot 
see  anything  reprehensible  in  it  now. 

Widows  and  Orphans 

Even  an  incident  so  spectacular  as  the  Northern 
Pacific  corner,  with  the  purely  stock  market  panic  which 
it  produced,  cannot  be  pleaded  as  an  example  of  a  kind 


14      THE  STOCK  MARKET  BAROMETER 

of  manipulation  which  would  disable  our  barometer. 
That  particular  panic  occurred  in  the  course  of  a  pri- 
mary bull  market.  It  produced  merely  a  severe  secon- 
dary reaction,  for  the  upward  movement  was  resumed 
and  did  not  culminate  until  sixteen  months  afterwards. 
That  incident  of  1901,  however,  is  still  alive  and  kick- 
ing, so  far  as  the  politicians  who  denounce  Wall  Street 
are  concerned.  It  is  remarkable  that  all  the  stock 
affected  in  these  bygone  incidents  is  alleged  to  have 
been  held  by  widows  and  orphans.  I  wish  somebody 
would  marry  that  widow  and  adopt,  or  even  spank, 
the  orphan.  After  depriving  their  trustees  of  the 
commonest  business  sense  they  have  no  right  to  come 
around  in  this  indelicate  way  and  remind  us  of  our 
crimes.  There  is  a  lucrative  engagement  waiting  for 
them  elsewhere — in  the  movies. 

Dow's  Theory  True  of  any  Stock  Market 

Let  us  be  serious,  and  get  back  to  our  text.  The 
law  that  governs  the  movement  of  the  stock  market, 
formulated  here,  would  be  equally  true  of  the  London 
Stock  Exchange,  the  Paris  Bourse  or  even  the  Berlin 
Boerse.  But  we  may  go  further.  The  principles  un- 
derlying that  law  would  be  true  if  those  Stock  Ex- 
changes and  ours  were  wiped  out  of  existence.  They 
would  come  into  operation  again,  automatically  and 
inevitably,  with  the  re-establishment  of  a  free  market 
in  securities  in  any  great  Capital.  So  far  as  I  know, 
there  has  not  been  a  record  corresponding  to  the  Dow- 
Jones  averages  kept  by  any  of  the  London  financial 


WALL  STREET  OF  THE  MOVIES         15 

publications.  But  the  stock  market  there  would  have 
the  same  quality  of  forecast  which  the  New  York 
market  has  if  similar  data  were  available. 

It  would  be  possible  to  compile  from  the  London 
Stock  Exchange  list  two  or  more  representative 
groups  of  stocks  and  show  their  primary,  their  secon- 
dary and  their  daily  movements  over  the  period  of 
years  covered  by  Wetenhall's  list  and  the  London 
Stock  Exchange  official  list.  An  average  made  up  of 
the  prices  of  the  British  railroads  might  well  confirm 
our  own.  There  is  in  London  a  longer  and  more 
diversified  list  of  industrial  stocks  to  draw  upon.  The 
averages  of  the  South  African  mining  stocks  in  the 
Kaffir  market,  properly  compiled  from  the  first  Trans- 
vaal gold  rush  in  1889,  would  have  an  interest  all  their 
own.  They  would  show  how  gold  mining  tends  to 
flourish  when  other  industries  are  stagnant  or  even 
prostrated.  The  comparison  of  that  average  with  the 
movement  of  securities  held  for  fixed  income  would  be 
highly  instructive  to  the  economist.  It  would  demon- 
strate in  the  most  vivid  way  the  relation  of  the  pur- 
chasing power  of  gold  to  bonds  held  for  investment. 
It  would  prove  conclusively  the  axiom  that  the  price 
of  securities  held  for  fixed  income  is  in  inverse  ratio  to 
the  cost  of  living,  as  we  shall  see  for  ourselves  in  a 
later  chapter. 

The  Fact  Without  the  Truth  is  False 

It  is  difficult,  and  with  many  observers  it  has  proved 
impossible,  to  regard  Wall  Street  comprehendingly 


1 6      THE  STOCK  MARKET  BAROMETER 

from  the  inside.  Just  as  it  will  be  shown  that  the 
market  is  bigger  than  the  manipulator,  bigger  than 
all  the  financiers  put  together,  so  it  is  true  that  the 
stock  market  barometer  is  in  a  way  bigger  than  the 
stock  market  itself.  A  modern  writer,  G.  K.  Chester- 
ton, has  said  that  the  fact  without  the  truth  is  sterile, 
that  the  fact  without  the  truth  is  even  false.  It  was 
not  until  Charles  H.  Dow  propounded  his  theory  of 
the  price  movement  that  any  real  attempt  had  been 
made  to  elicit  and  set  forth  the  truth  contained  in  the 
fact  of  the  stock  market.  Can  we  make  it  possible 
for  the  man  whose  business  brings  him  into  the  midst 
of  that  whirling  machinery  to  understand  the  power 
which  moves  it,  and  even  something  of  the  way  that 
power  is  generated?  Apparently  the  only  picture 
which  has  hitherto  reached  the  popular  retina  is  the 
distorted  image  which  we  have  called  the  Wall  Street 
of  the  movies. 

Homage  Vice  Pays  to  Virtue 

Why  does  the  swindling  oil-stock  promoter  circular- 
ize his  victims  from  some  reputable  address  in  the 
financial  district,  and  use  all  sorts  of  inducements  to 
get  his  stock  quoted  in  the  financial  columns  of  repu- 
table metropolitan  newspapers?  Would  he  do  that  if 
the  public  he  addresses,  the  investor  and  the  specu- 
lator,— the  investor  in  embryo, — really  believed  that 
Wall  Street  was  the  sink  of  iniquity  which  the  country 
politician  depicts?  If  that  were  truly  the  case  the 
shady  promoter  would  seek  other  quarters.  But  he 


WALL  STREET  OF  THE  MOVIES         17 

uses  the  financial  district  because  he  knows  that  its 
credit  and  integrity  are  the  best  in  the  world.  Hypoc- 
risy is  the  tribute  which  vice  pays  to  virtue.  He  would 
have  no  use  for  a  Wall  Street  as  rotten  as  himself. 
Indeed,  if  the  financial  district  were  one  tithe  as  cor- 
rupt as  the  demagogues  who  abuse  it  there  would  be 
no  problem  for  them  to  propound.  The  money  center 
of  the  United  States  would  fall  to  pieces  of  its  own 
rottenness.  All  this  is  true,  and  yet  if  the  exact  con- 
trary were  the  case  the  theory  of  the  stock-market 
movement  would  still  be  valid. 

Rhodes  and  Morgan 

It  will  not  be  charged  that  the  writer  is  like  the 
dyer's  hand,  subdued  to  what  he  works  in,  if  his  illus- 
trations have  been  chosen  mainly  from  the  financial 
district.  There  is  a  Wall  Street  engaged  upon  tasks  so 
serious,  so  exacting,  that  it  has  neither  time  nor  inclina- 
tion to  be  crooked.  If  it  is  true,  as  we  have  seen,  that 
nobody  can  know  all  the  facts  which  at  any  one  time 
influence  the  stock-market  movement,  it  is  true,  as  any 
of  us  can  record  from  personal  experience,  that  some 
have  far  more  knowledge  than  others.  The  men  who 
really  know  lift  you  out  of  this  scuffle  of  petty  criticism 
and  recrimination.  When  they  are  rich  men  their 
wealth  is  incidental,  the  most  obvious  means  to  larger 
ends,  but  not  an  end  in  itself. 

When  I  was  following  my  profession  in  South 
Africa,  a  quarter  of  a  century  ago,  I  was  thrown  in 
contact  with  Cecil  John  Rhodes.  He  had  definite  ideas 


i8      THE  STOCK  MARKET  BAROMETER 

and  large  conceptions,  far  above  the  mere  making  of 
money.  Money  was  necessary  to  the  carrying  out  of 
his  ideas,  to  the  extension  of  white  civilization  from 
the  Cape  to  Cairo,  with  a  railroad  as  the  outward  and 
visible  sign  of  something  of  even  spiritual  significance. 
In  the  respect  of  intuitive  intelligence  I  have  met  only 
one  man  like  him — the  late  J.  Pierpont  Morgan.  It 
was  impossible  to  follow  the  rapidity  of  their  mental 
processes.  There  was  something  phenomenal  about  it, 
like  the  performances  of  mathematically  gifted  chil- 
dren who  can  give  you  the  square  root  of  a  number  in 
thousands  with  a  few  moments  of  mental  calculation. 
Other  well-known  men — speaking  perhaps  from  the 
point  of  view  of  a  reporter — seemed  to  have  mental 
processes  much  like  our  own.  Most  of  the  great  cap- 
tains of  industry  I  have  met,  like  James  J.  Hill  and 
Edward  H.  Harriman,  had  a  quality  essential  to  a 
first-rate  thinker.  They  could  eliminate  the  irrelevant. 
They  could  grasp  the  fundamental  fact  in  a  page  of 
verbiage.  But  Rhodes  and  Morgan  could  do  more. 
They  could  reason  to  an  often  startling  but  sound  con- 
clusion before  you  could  state  the  premises. 

Not  Indescribable 

And  these  men  were  rich,  almost  fortuitously.  They 
had  great  tasks  to  accomplish,  and  it  was  necessary 
that  they  should  have  the  financial  means  which  made 
achievement  possible.  In  the  past  few  years  we  have 
heard  a  great  deal  about  "ideals,"  and  found  that  most 
of  them  were  half-digested  opinions.  But  there  is  a 


WALL  STREET  OF  THE  MOVIES         19 

Wall  Street  with  an  ideal.  There  has  usually  been, 
and  I  hope  there  always  will  be,  the  right  man  to  take 
the  right  objective  view  at  the  right  moment.  Not 
long  ago  I  heard  a  lecturer  setting  forth  what  he  called 
the  "indescribable"  beauties  of  the  Grand  Canyon  of 
the  Colorado.  In  the  space  of  an  hour  and  a  quarter 
he  proved  conclusively  that  those  beauties  were  inde- 
scribable, at  least  so  far  as  he  was  concerned.  But 
Milton  could  have  described  them,  or  the  Psalmist. 
Perhaps  any  reasonably  intelligent  man  could  give  you 
an  idea  of  that  natural  wonder  if  he  set  forth  simply 
the  spiritual  truth  in  the  physical  fact  before  him. 

The  Unchangeable 

I  feel  I  have  said  before,  perhaps  in  editorials  you 
read  to-day,  and  forget  to-morrow,  what  I  am  saying 
now.  The  problems  of  humanity  do  not  change,  be- 
cause human  nature  is  what  it  has  been  as  far  back 
as  human  record  tells.  "Cycles"  are  as  old  as  organ- 
ized humanity.  The  changes  we  see  are  superficial, 
especially  where  sincere  and  intelligent  men  so  legislate 
that  they  may  the  better  live  together  in  peace  and 
good  will.  The  human  heart  is  essential  to  all  prog- 
ress. Reform  starts  there,  and  not  in  the  halls  of 
legislation. 

The  Bells  of  Trinity 

Facing  the  western  end  of  Wall  Street,  casting  its 
shadow  from  the  setting  sun  upon  the  most  criticized 
and  least  understood  section  of  a  great  nation,  stands 
the  spire  of  Trinity.  We  have  often  heard  its  bells 


20     THE  STOCK  MARKET  BAROMETER 

ringing  the  old  familiar  Christmas  hymns.  The  shep- 
herds will  be  watching  their  flocks  again,  all  seated 
on  the  ground.  It  may  well  be  that,  hearing  those 
bells,  the  glory  of  the  Lord  shall  in  some  manner  shine 
round  about  us.  There  is  little  that  laws  can  do  to 
make  men  happier  or  richer  or  more  contented.  There 
is  no  form  of  government  to-day,  without  its  parallel, 
and  warning,  in  the  past.  There  is  none  in  the  past 
of  which  it  could  not  be  said  that  only  righteousness 
exalteth  a  nation.  Wall  Street  knows  as  well  as  the 
most  disinterested  of  its  critics  that  goodness  and  jus- 
tice and  sacrifice  and  love  are  the  foundation  of  all 
good  government,  because  in  that  spirit  alone  a  people 
truly  governs  itself. 

We  have  said  that  the  laws  we  are  studying  arc 
fundamental,  axiomatic,  self-evident.  And  in  this 
higher  truth  surely  there  is  something  permanent  which 
would  remain  if  the  letter  of  the  Constitution  of  the 
United  States  had  become  an  interesting  study  for  the 
archeologist,  and  the  surviving  writings  of  our  day 
were  classical  in  a  sense  their  authors  never  dreamed. 
Such  a  foundation  is  permanent  because  truth  has  in  it 
the  element  of  the  divine. 


Chapter  III 

CHARLES   H.  DOW,   AND   HIS  THEORY 

TO  judge  from  a  large  number  of  letters  received 
from  readers  of  past  discussions  on  Dow's 
theory  of  the  averages,  and  on  panic  and  prosperity 
cycles  generally,  that  theory  is  assumed  to  be  some- 
thing in  the  nature  of  a  sure  way  to  make  money  in 
Wall  Street.  It  may  be  said  at  once  that  it  bears  no 
resemblance  to  any  "martingale"  or  system  of  beat- 
ing the  bank.  Some  of  the  questions  show  more  intel- 
ligence and  understanding  than  this,  and  one  of  them 
at  least  deserves  an  extended  reply. 

A  Newspaper  Man,  and  More 

"Who  was  Dow,  and  where  can  I  read  his  theory?" 
Charles  H.  Dow  was  the  founder  of  the  Dow-Jones 
financial  news  service  in  New  York,  and  founder  and 
first  editor  of  The  Wall  Street  Journal.  He  died  in 
December,  1902,  in  his  fifty-second  year.  He  was  an 
experienced  newspaper  reporter,  with  an  early  train- 
ing under  Samuel  Bowles,  the  great  editor  of  the 
Springfield  Republican.  Dow  was  a  New  Englander, 
intelligent,  self-repressed,  ultra-conservative;  and  he 
knew  his  business.  He  was  almost  judicially  cold  in 
the  consideration  of  any  subject,  whatever  the  fervor 
of  discussion.  It  would  be  less  than  just  to  say  that 
*  never  saw  him  angry ;  I  never  saw  him  even  excited. 

ai 


22     THE  STOCK  MARKET  BAROMETER 

His  perfect  integrity  and  good  sense  commanded  the 
confidence  of  every  man  in  Wall  Street,  at  a  time  when 
there  were  few  efficient  newspaper  men  covering  the 
financial  section,  and  of  these  still  fewer  with  any  deep 
knowledge  of  finance. 

Dow  also  had  the  advantage  of  some  years  experi- 
ence on  the  floor  of  the  Stock  Exchange.  It  came  about 
in  a  rather  curious  way.  The  late  Robert  Goodbody, 
an  Irishman,  a  Quaker  and  an  honor  to  Wall  Street, 
came  over  from  Dublin  to  America.  As  the  New 
York  Stock  Exchange  requires  that  every  member  shall 
be  an  American  citizen,  Charles  H.  Dow  became  his 
partner.  During  the  time  necessary  for  Robert  Good- 
body  to  naturalize,  Dow  held  a  seat  in  the  Stock  Ex- 
change and  executed  orders  on  the  floor.  When  Good- 
body  became  an  American  citizen  Dow  withdrew  from 
the  Exchange  and  returned  to  his  more  congenial  news- 
paper work. 

Dow's  Caution,  and  His  Theory 

Knowing  and  liking  Dow,  with  whom  I  worked  in 
the  last  years  of  his  life,  I  was  often,  with  many  of 
his  friends,  exasperated  by  his  overconservatism.  It 
showed  itself  particularly  in  his  editorials  in  The  Wall 
Street  Journal,  to  which  it  is  now  necessary  to  allude 
because  they  are  the  only  written  record  of  Dow's 
theory  of  the  price  movement.  He  would  write  a 
strong,  readable  and  convincing  editorial,  on  a  public 
question  affecting  finance  and  business,  and  in  the  last 
paragraph  would  add  safeguards  and  saving  clauses 
which  not  merely  took  the  sting  out  of  it  but  took  the 


CHARLES  H.  DOW,  AND  HIS  THEORY    23 

"wallop"  out  of  it.    In  the  language  of  the  prize  ring, 
he  pulled  his  punches. 

He  was  almost  too  cautious  to  come  out  with  a  flat, 
dogmatic  statement  of  his  theory,  however  sound  it 
was  and  however  close  and  clear  his  reasoning  might 
be.  He  wrote,  mostly  in  1901  and  the  first  half  of 
1902,  a  number  of  editorials  dealing  with  methods  of 
stock  speculation.  His  theory  must  be  disinterred 
from  those  editorials,  where  it  is  illustrative  and  inci- 
dental and  never  the  main  subject  of  discussion.  It  is 
curious  also  that  in  one  of  his  earliest  statements  of 
the  price  movement  he  makes  an  indefensible  claim. 
Under  the  caption  "Swings  Within  Swings,"  in  the 
Review  and  Outlook  of  The  Wall  Street  Journal  of 
January  4,  1902,  he  says: 

"Nothing  is  more  certain  than  that  the  market  has  three  well 
defined  movements  which  fit  into  each  other.  The  first  is  the 
daily  variation  due  to  local  causes  and  the  balance  of  buying  or 
selling  at  that  particular  time.  The  secondary  movement  covers 
a  period  ranging  from  ten  days  to  sixty  days,  averaging  prob- 
ably between  thirty  and  forty  days.  The  third  swing  is  the 
great  move  covering  from  four  to  six  years." 

Where  Dow  Went  Wrong 

Remember  that  Dow  wrote  this  twenty  years  ago, 
and  that  he  had  not  the  records  for  analysis  of  the 
stock  market  movement  which  are  now  available.  The 
extent  of  the  primary  movement,  as  given  in  this  quota- 
tion, is  proved  to  be  far  too  long  by  subsequent  experi- 
ence; and  a  careful  examination  has  shown  me  that 
the  major  swing  before  Dow  wrote  was  never  "from 


24     THE  STOCK  MARKET  BAROMETER 

four  to  six  years,"  rarely  three  years  and  oftener  less 
than  two. 

But  Dow  always  had  a  reason  for  what  he  said,  and 
his  intellectual  honesty  assures  those  who  knew  him 
that  it  was  at  least  an  arguable  reason.  It  was  based 
upon  his  profound  belief  in  the  recurrence  of  financial 
crises,  at  periodic  intervals  (as  shown  by  recorded 
financial  history),  of  a  little  more  than  ten  years. 
Dow  assumed  for  that  period  one  primary  bull  market 
and  one  primary  bear  market,  and  therefore  split  the 
ten-year  period  in  half.  It  was  rather  like  the  little 
boy  who,  being  asked  to  name  ten  arctic  animals,  sub- 
mitted "five  seals  and  five  polar  bears  I" 


Panic  Dates  of  Jevons 

In  the  opening  chapter  we  spoke  of  historic  panics, 
of  Professor  Stanley  Jevons,  and  of  his  theory  con- 
necting such  crises  with  the  recurrence  of  spots  on  the 
sun  and  their  assumed  influence  upon  the  weather  and 
crops.  I  said  that  the  reasoning  was  about  as  good 
as  associating  presidential  elections  with  leap  years. 
But  here  are  the  dates  of  commercial  crises  in  Eng- 
land as  recorded  by  Jevons,  and  it  is  fair  to  say  that 
they  are  sufficiently  impressive.  These  years  are  1701, 
1711,  1712,  1731-32,  1742,  1752,  1763,  1772-3, 
^S.  1793.  1804-5,  1815,  1825,  1836,  1847,  1857, 
1866,  and  1873. 

As  Dow  says  in  an  editorial  quoting  these  dates, 
published  in  The  Wall  Street  Journal  on  July  9,  1902 : 


CHARLES  H.  DOW,  AND  HIS  THEORY;    25 

"This  makes  a  very  good  showing  for  the  ten-year  theory 
and  is  supported,  to  a  considerable  extent,  by  what  has  occurred 
in  this  country  during  the  past  century." 

Dow's  account  of  the  successive  crises  in  this  country 
(he  had  personal  experience  of  three  of  them — 1873, 
1884  and  1893)  was  so  good  and  interesting  that  it 
is  well  worth  quoting  here.  So  far  as  Jevons's  dates 
are  concerned,  it  is  curious  to  note  that  he  omitted 
one  serious  crisis  near  the  beginning  of  his  list.  That 
occurred  in  1715,  and  was  precipitated  by  the  Scottish 
invasion  of  England  in  that  year  to  restore  the  Stuarts 
to  the  English  throne.  It  is  rather  human  of  Jevons 
to  omit  it,  if,  as  I  suspect,  there  were  not  enough  spots 
on  the  sun  in  that  year  to  fit  the  parallel. 

Dow  on  Our  Own  Crises 

Here  is  Dow's  account  of  our  own  crises : 
"The  first  crisis  in  the  United  States  during  the  nineteenth 
century  came  in  1814,  and  was  precipitated  by  the  capture  of 
Washington  by  the  British  on  the  24th  of  August  in  that  year. 
The  Philadelphia  and  New  York  banks  suspended  payments, 
and  for  a  time  the  crisis  was  acute.  The  difficulties  leading 
up  to  this  period  were  the  great  falling  off  in  foreign  trade 
caused  by  the  embargo  and  non-intercourse  acts  of  1808,  the 
excess  of  public  expenditures  over  public  receipts,  and  the  crea- 
tion of  a  large  number  of  state  banks  taking  the  place  of  the 
old  United  States  Bank.  Many  of  these  state  banks  lacked 
capital  and  issued  currency  without  sufficient  security. 

1819,  1825,  and  1837 

"There  was  a  near  approach  to  a  crisis  in  1819  as  the  result 
of  a  tremendous  contraction  of  bank  circulation.  The  previous 


26      THE  STOCK  MARKET  BAROMETER 

increase  of  bank  issues  had  prompted  speculation,  the  contrac- 
tion caused  a  serious  fall  in  the  prices  of  commodities  and  real 
estate.  This,  however,  was  purely  a  money  panic  as  far  as  its 
causes  were  concerned. 

"The  European  crisis  in  1825  caused  a  diminished  demand 
for  American  products  and  led  to  lower  prices  and  some  money 
stringency  in  1826.  The  situation,  however,  did  not  become 
very  serious  and  was  more  in  the  nature  of  an  interruption  to 
progress  than  a  reversal  of  conditions. 

"The  year  1837  brought  a  great  commercial  panic,  for  which 
there  was  abundant  cause.  There  had  been  rapid  industrial 
and  commercial  growth,  with  a  multitude  of  enterprises  estab- 
lished ahead  of  the  time.  Crops  were  deficient,  and  breadstuffs 
were  imported.  The  refusal  of  the  government  to  extend  the 
charter  of  the  United  States  Bank  had  caused  a  radical  change 
in  the  banking  business  of  the  country,  while  the  withdrawal 
of  public  deposits  and  their  lodgment  with  state  banks  had 
given  the  foundation  for  abnormal  speculation. 

1847,  1857,  and  1866 

"The  panic  in  Europe  in  1847  exerted  but  little  influence  in 
this  country,  although  there  was  a  serious  loss  in  specie,  and  the 
Mexican  war  had  some  effect  in  checking  enterprises.  These 
effects,  however,  were  neutralized  somewhat  by  large  exports  of 
breadstuffs  and  later  by  the  discovery  of  gold  in  1848-9. 

"There  was  a  panic  of  the  first  magnitude  in  1857,  following 
the  failure  of  the  Ohio  Life  Insurance  and  Trust  Company  in 
August.  This  panic  came  unexpectedly,  although  prices  had 
been  falling  for  some  months.  There  had  been  very  large 
railroad  building,  and  the  proportion  of  specie  held  by  banks 
was  very  small  in  proportion  to  their  loans  and  deposits.  One 
of  the  features  of  this  period  was  the  great  number  of  failures. 
The  banks  generally  suspended  payments  in  October. 

"The  London  panic  in  1866,  precipitated  by  the  failure  of 
Overend,  Gurney  &  Co.,  was  followed  by  heavy  fall  in  prices 
in  the  Stock  Exchange  here.  In  April  there  had  been  a  corner 


CHARLES  H.  DOW,  AND  HIS  THEORY    27 

in  Michigan  Southern  and  rampant  speculation  generally,  from 
which  the  relapse  was  rather  more  than  normal. 

1873,  1884,  and  1893 

"The  panic  of  September,  1873,  was  a  commercial  as  well 
as  a  Stock  Exchange  panic.  It  was  the  outcome  of  an  enormous 
conversion  of  floating  into  fixed  capital.  Business  had  been 
expanded  on  an  enormous  scale,  and  the  supply  of  money  became 
insufficient  for  the  demands  made  upon  it.  Credit  collapsed, 
and  the  depression  was  extremely  serious. 

"The  year  1884  brought  a  Stock  Exchange  smash  but  not  a 
commercial  crisis.  The  failure  of  the  Marine  Bank,  Metro- 
politan Bank  and  Grant  &  Ward  in  May  was  accompanied 
by  a  large  fall  in  prices  and  a  general  check  which  was  felt 
throughout  the  year.  The  Trunk  Line  war,  which  had  lasted 
for  several  years,  was  one  of  the  factors  in  this  period. 

"The  panic  of  1893  was  the  outcome  of  a  number  of  causes — 
uncertainty  in  regard  to  the  currency  situation,  the  withdrawal 
of  foreign  investments  and  the  fear  of  radical  tariff  legisla- 
tion. The  anxiety  in  regard  to  the  maintenance  of  the  gold 
standard  was  undoubtedly  the  chief  factor,  as  it  bore  upon  many 
others." 

A  Weak  Prediction 

With  a  caution  in  prediction  which  is  not  merely 
New  England  but  almost  Scottish,  Dow,  in  a  typical 
final  paragraph,  goes  on  to  say : 

"Judging  by  the  past  and  by  the  developments  of  the  last 
six  years,  it  is  not  unreasonable  to  suppose  that  we  may  get  at 
least  a  Stock  Exchange  flurry  in  the  next  few  years." 

So  far  from  being  unreasonable,  it  was  not  even 
a  daring  guess.  It  was  more  than  a  "flurry"  in  1907, 
five  years  after,  when  the  New  York  banks  resorted 
to  clearing-house  certificates  and  the  stock  market 


28      THE  STOCK  MARKET  BAROMETER 

grazed  a  panic  by  a  bare  five  minutes.  But  the  pre- 
diction was  made  during  a  primary  upward  swing  which 
culminated  in  September  of  the  year  1902,  three 
months  before  Dow  died. 

Events  soon  disproved  Dow's  five-year  primary 
swings,  arrived  at  by  splitting  the  assumed  ten-year 
cycle  in  half.  There  was  a  primary  bear  market  from 
September,  1902,  lasting  nearly  a  year.  A  primary 
bull  market  originated  in  September,  1903,  becoming 
definitely  marked  by  June,  1904,  and  culminating  in 
January,  1907 — a  period  of  three  years  and  four 
months;  while  the  primary  bear  market  which  fol- 
lowed it  and  covered  the  period  of  the  crisis  of  1907 
lasted  until  the  following  December — a  period  of 
eleven  months. 

Nelson's  Book  on  Speculation 

All  that  Dow  ever  printed  is  in  The  Wall  Street 
Journal,  and  only  by  search  through  the  precious  files 
of  Wall  Street's  Bible  can  his  theory  of  the  stock 
market  price  movement  be  reconstructed.  But  at  the 
end  of  1902  the  late  S.  A.  Nelson  wrote  and  published 
an  unpretentious  book  called  The  A  B  C  of  Stock 
Speculation.  It  is  long  out  of  print,  but  may  occa- 
sionally be  picked  up  from  the  second-hand  booksellers. 
He  tried  to  persuade  Dow  to  write  the  book,  and, 
failing  that,  he  incorporated  in  it  all  that  he  could  find 
of  what  Dow  had  said  on  stock  speculation  in  The 
Wall  Street  Journal.  Of  the  thirty-five  chapters  in  the 
book,  fifteen  (Chapters  V  to  XIX  inclusive)  are  edi- 
torials, some  slightly  abridged,  from  The  Wall  Street 


CHARLES  H.  DOW,  AND  HIS  THEORY    29 

Journal,  covering  such  subjects  as  'Scientific  Specula- 
tion," "Methods  of  Reading  the  Market,"  "Methods 
of  Trading"  and  market  swings  generally — all  of  them 
interesting  but  not  suitable  for  entire  reproduction 
here,  although  they  will  be  sufficiently  quoted  in  sub- 
sequent chapters. 

Nelson's  is  a  conscientious  and  sensible  little  book. 
He  was  a  conscientious  and  sensible  little  man — one 
we  loved  and  laughed  at,  for  young  reporters  could 
not  take  him  as  seriously  as  he  took  himself.  His 
autographed  copy  lies  before  me  as  I  write,  and  I  can 
see  his  pathetic  figure  and  earnest,  strained  face — he 
was  dying  of  tuberculosis — as  I  read  his  rather  con- 
ventional discussions  on  the  morality  of  speculation. 
He  died  not  long  after,  far  away  from  his  beloved 
Wall  Street,  but  it  was  he  who  evolved  the  name  of 
"Dow's  Theory."  It  was  an  honorable  ascription,  to 
which  Dow  is  fully  entitled;  for  if  many  people  had 
recognized  meaning  in  traceable  movements  in  the 
stock  market — the  great  and  useful  barometer  of 
trade — it  was  Dow  who  first  formulated  those  ideas 
in  a  practical  way. 


Chapter  IV 

DOW'S  THEORY,  APPLIED  TO  SPECULATION 

WE  have  seen  in  past  discussions  of  Dow's  theory 
of  the  stock-market  price  movement  that  the 
essence  of  it  could  be  summed  up  in  three  sentences.  In 
an  editorial  published  December  19,  1900,  he  says,  in 
The  Wall  Street  Journal: 

"The  market  is  always  to  be  considered  as  having  three  move- 
ments, all  going  on  at  the  same  time.  The  first  is  the  narrow 
movement  from  day  to  day.  The  second  is  the  short  swing, 
running  from  two  weeks  to  a  month  or  more ;  the  third  is  the 
main  movement,  covering  at  least  four  years  in  its  duration." 

It  has  already  been  shown  that  his  third  and  main 
movement  may  complete  itself  in  much  less  than  Dow's 
assumed  four  years,  and  also  how  an  attempt  to  divide 
the  ten-year  period  of  the  panic  cycle  theory  into  a 
bear  and  bull  market  of  approximately  five  years  each 
led  to  an  unconscious  exaggeration.  That,  however, 
is  immaterial.  Dow  had  successfully  formulated  a 
theory  of  the  market  movements  of  the  highest  value, 
and  had  synchronized  those  movements  so  that  those 
who  came  after  him  could  construct  a  business 
barometer. 

The  Truth  Beneath  Speculation 

This  is  the  essence  of  Dow's  theory,  and  it  need 
hardly  be  said  that  he  did  not  see,  or  live  to  see,  all 

30 


DOW'S  THEORY  APPLIED  31 

that  it  implied.  He  never  wrote  a  single  editorial  on 
the  theory  alone,  but  returns  to  it  to  illustrate  his  dis- 
cussions on  stock-market  speculation,  and  the  under- 
lying facts  and  truths  responsible  not  only  for  specu- 
lation (using  the  word  in  its  best  and  most  useful 
sense)  but  for  the  market  itself. 

It  is  not  surprising  that  The  Wall  Street  Journal 
received  many  inquiries  as  to  the  assumptions  it  made 
on  the  basis  of  Dow's  major  premise.  On  January  4, 
1902,  Dow  replies  to  a  pertinent  question,  and  any 
thoughtful  reader  of  these  pages  should  be  able  to 
answer  it  himself.  The  correspondent  asks  him,  "For 
some  time  you  have  been  writing  rather  bullish  on  the 
immediate  market,  yet  a  little  bearish  in  a  larger 
sense.  How  do  you  make  this  consistent?"  Dow's 
reply  was,  of  course,  that  he  was  bullish  after  the 
secondary  swing  but  that  he  did  not  think,  in  view  of 
stock  values  from  earnings  of  record,  that  a  bull  mar- 
ket which  had  then  been  operative  sixteen  months 
could  run  much  further.  It  was  a  curious  contraction, 
incidentally,  of  his  own  minimum  four-year  estimate, 
but  that  major  upward  swing  as  a  matter  of  fact  ran 
until  the  following  September.  It  may  be  said  that 
such  a  swing  always  outruns  values.  In  its  final  stage 
it  is  discounting  possibilities  only. 

A  Useful  Definition 

In  the  same  editorial  Dow  goes  on  to  give  a  useful 
definition  from  which  legitimate  inferences  may  drawn. 
He  says:  _,  ... 


32      THE  STOCK  MARKET  BAROMETER 

"It  is  a  bull  period  as  long  as  the  average  of  one  high  point 
exceeds  that  of  previous  high  points.  It  is  a  bear  period  when 
the  low  point  becomes  lower  than  the  previous  low  points.  It  is 
often  difficult  to  judge  whether  the  end  of  an  advance  has  come 
because  the  movement  of  prices  is  that  which  would  occur  if  the 
main  tendency  had  changed.  Yet,  it  may  only  be  an  unusually 
pronounced  secondary  movement." 

This  passage  contains,  by  implication,  both  the  idea 
of  "double  tops"  and  "double  bottoms"  (which  I 
frankly  confess  I  have  not  found  essential  or  greatly 
useful)  and  the  idea  of  a  "line,"  as  shown  in  the  nar- 
row fluctuation  of  the  averages  over  a  recognized 
period,  necessarily  one  either  of  accumulation  or  dis- 
tribution. This  has  been  found  to  be  of  the  greatest 
service  in  showing  the  further  persistence  of  the  main 
movement,  or  the  possible  termination  of  the  secon- 
dary movement,  so  apt  to  be  mistaken  for  the  initiation 
of  a  new  major  trend.  I  shall,  in  a  later  chapter, 
analyze  such  a  "line,"  made  in  the  stock  market  in 
1914. 

Successful  Forecast 

In  subsequent  discussions  there  will  be  no  difficulty 
in  showing,  from  the  various  studies  in  the  price  move- 
ment since  1902,  standing  for  record  in  the  columns 
of  The  Wall  Street  Journal,  that  the  method  for  a 
forecast  of  the  main  market  movement  and  for  a  cor- 
rect discrimination  between  that  and  the  secondary 
movement  had  been  provided  in  Dow's  theory,  and 
that  it  has  been  used  with  surprising  accuracy.  A 
prophet,  especially  in  Wall  Street,  takes  his  life  in 
his  hands.  If  his  predictions  are  always  of  the  ros 


DOW'S  THEORY  APPLIED  33 

whatever  the  facts  of  the  situation  may  be,  he  will 
at  worst  be  merely  called  a  fool  for  his  pains.  The 
charge  against  him  will  be  far  more  serious  if  he  sees 
that  a  boom  nas  overrun  itself,  and  says  so.  If  he  is 
bearish  and  right  he  will  be  accused  of  unworthy 
motives.  He  will  even  be  held  contributory  to  the 
decline  which  he  foresaw,  although  his  motives  may 
have  been  of  the  highest  and  he  may  have  not  a  penny 
of  interest  in  the  market  either  way. 

"Recalling"  a  Prophet 

Is  the  American  public  so  ungrateful  to  its  Micaiahs 
and  Cassandras  as  this?  Yes,  indeed,  and  more  so. 
It  does  not  like  unpleasant  truths.  In  1912,  when 
Colonel  C.  McD.  Townsend  of  the  United  States 
Engineers,  an  army  man  with  a  brilliant  record  then 
and  since,  was  president  of  the  Mississippi  River  Com- 
mission, he  predicted,  from  the  height  of  the  water 
in  the  upper  rivers,  one  of  the  greatest  Mississippi 
floods.  He  warned  the  city  of  New  Orleans  that  the 
flood  might  be  expected  in  a  month's  time,  recommend- 
ing the  most  vigorous  and  immediate  steps  to  lessen 
the  calamity.  Was  New  Orleans  grateful?  Its  citi- 
zens held  an  indignation  meeting  to  demand  from 
President  Taft  the  recall  of  this  "calamity  howler" 
and  "dangerous  alarmist."  Mr.  Taft  characteris- 
tically kept  his  head,  and  Colonel  Townsend  was  not 
removed.  A  good  deal  of  property  in  the  Mississippi 
Valley  was  "removed,"  and  it  is  needless  to  record  that 
New  Orleans  did  not  escape.  The  railroads  and  great 


34     THE  STOCK  MARKET  BAROMETER 

industrial  concerns,  where  they  were  likely  to  be  affected, 
took  the  warning  seriously,  with  advantage  to  them- 
selves. The  mayor  of  New  Orleans  subsequently 
rescinded  the  resolution,  with  an  apology.  Anyone 
who  knows  one  of  the  ablest  and  least  advertised  en- 
gineers in  the  United  States  Army  will  readily  under- 
stand that  Townsend  regarded  the  mayor  and  the 
previous  mass  meeting  with  equal  indifference. 

Synchronizing  the  Price  Movement 

It  has  been  said  before  that  Dow's  theory  is  in  no 
sense  to  be  regarded  as  a  gambler's  system  for  beating 
the  game.  Any  trader  would  disregard  it  at  his  peril, 
but  Dow  himself  never  considered  it  in  that  light,  as 
I  can  testify  from  many  discussions  with  him.  I  was 
writing  the  stock  market  paragraphs  of  the  Dow-Jones 
news  service  and  The  Wall  Street  Journal  in  those 
days,  and  it  was,  of  course,  essential  that  I  should 
thoroughly  understand  so  scientific  a  method  of  syn- 
chronizing the  market  movement.  Many  men  in  Wall 
Street  knew  Dow  and  set  their  experience  at  his  service. 
His  mind  was  cautious  to  a  fault,  but  logical  and 
intellectually  honest.  I  did  not  always  agree  with 
him  and  he  was  oftener  right  than  I.  When  he  was 
wrong  it  was  clearly  from  lack  of  accurate  data  such 
as  is  now  available. 

Necessary  Knowledge 

It  would  perhaps  be  well  to  point  out  here  that  a 
knowledge  of  the  major  movement  of  the  market, 


DOW'S  THEORY  APPLIED  3* 

whether  up  or  down,  is  necessary  for  the  successful 
flotation  of  any  largely  capitalized  enterprise.  In  a 
future  discussion  it  will  be  convenient  and  highly  inter- 
esting to  illustrate,  from  James  R.  Keene's  own  admis- 
sions, how  he  distributed  Amalgamated  Copper  to  an 
oversanguine  public  at  a  time  when  the  Boston  News 
Bureau,  to  its  everlasting  honor,  was  warning  New 
England  investors  to  have  nothing  to  do  with  that 
property  at  anything  like  the  prices  asked,  or  allow 
themselves  to  be  deceived  by  the  quarterly  dividend  of 
\Y-2.  per  cent  and  a  half  per  cent  extra.  That  rate 
was  retained  at  a  time  when  The  Wall  Street  Journal 
was  openly  calling  the  company  a  "blind  pool,"  and 
showing,  as  the  Boston  News  Bureau  had  shown,  that 
neither  the  conditions  of  the  copper  trade  nor  the 
capitalization  itself  justified  the  flotation  price.  But 
Keene  could  never  have  distributed  the  stock  except 
during  the  known  major  swing  of  a  great  bull  market. 
He  had  exactly  the  same  condition  to  help  him  in  the 
much  more  formidable,  and  creditable,  task  of  dis- 
tributing the  enormous  capitalization  of  the  United 
States  Steel  Corporation.  That  stock  could  never  have 
been  sold,  and  its  sale  would  never  have  been  at- 
tempted, in  the  subsequent  bear  market  of  1903. 

An  Instructive  Editorial 

It  would  be  unfair  to  Dow  if  the  reader  were  not 
given  the  opportunity  of  extracting  for  himself  some 
light  on  Dow's  own  application  of  his  theory,  or  at 
any  rate  some  idea  of  his  method  in  the  series  of 


36      THE  STOCK  MARKET  BAROMETER 

editorials  which,  as  I  have  said  before,  dealt  primarily 
with  stock  speculation  as  such  and  only  incidentally 
with  rules  for  reading  the  market.  Here  is  an  edito- 
rial, almost  in  full,  published  on  July  20,  1901,  only 
ten  weeks  after  the  panic  which  resulted  from  the 
Northern  Pacific  corner.  At  the  time  he  wrote  he  did 
not  see  clearly  that  it  was  not  a  culmination  of  a  major 
swing  but  a  peculiarly  violent  secondary  reaction  in  a 
primary  bull  market.  He  speaks  first  of  individual 
stocks : 

"There  is  what  is  called  the  book  method.  Prices  are  set 
down,  giving  each  change  of  one  point  as  it  occurs,  forming 
thereby  lines  having  a  general  horizontal  direction  but  running 
into  diagonals  as  the  market  moves  up  and  down.  There  come 
times  when  a  stock  with  a  good  degree  of  activity  will  stay 
within  a  narrow  range  of  prices,  say  two  points,  until  there 
has  formed  quite  a  long  horizontal  line  of  these  figures.  The 
formation  of  such  a  line  sometimes  suggests  that  stock  has  been 
accumulated  or  distributed,  and  this  leads  other  people  to  buy 
or  sell  at  the  same  time.  Records  of  this  kind  kept  for  the 
last  fifteen  years  seem  to  support  the  theory  that  the  manipula- 
tion necessary  to  acquire  stock  is  oftentimes  detected  in  this  way. 

"Another  method  is  what  is  called  the  theory  of  double  tops. 
Records  of  trading  show  that  in  many  cases  when  a  stock  reaches 
top  it  will  have  a  moderate  decline  and  then  go  back  again  to 
near  the  highest  figures.  If  after  such  a  move,  the  price  again 
recedes,  it  is  liable  to  decline  some  distance. 

"Those,  however,  who  attempt  to  trade  on  this  theory  alone 
find  a  good  many  exceptions  and  a  good  many  times  when 
signals  are  not  given. 

Trading  on  Averages 

"There  are  those  who  trade  on  the  theory  of  averages.  It  is 
true  that  in  a  considerable  period  of  time  the  market  has  about 


DOW'S  THEORY  APPLIED  37 

as  many  days  of  advance  as  it  has  of  decline.  If  there  come  a 
series  of  days  of  advance,  there  will  almost  surely  come  the 
balancing  days  of  decline. 

"The  trouble  with  this  system  is  that  the  small  swings  are 
always  part  of  the  larger  swings,  and  while  the  tendency  of 
events  equally  liable  to  happen  is  always  toward  equality,  it  is 
also  true  that  every  combination  possible  is  liable  to  occur,  and 
there  frequently  come  long  swings,  or,  in  the  case  of  stock 
trading,  an  extraordinary  number  of  days  of  advance  or  decline 
which  fit  properly  into  the  theory  when  regarded  on  a  long 
scale,  but  which  are  calculated  to  upset  any  operations  based  on 
the  expectation  of  a  series  of  short  swings. 

"A  much  more  practicable  theory  is  that  founded  on  the  law 
of  action  and  reaction.  It  seems  to  be  a  fact  that  a  primary 
movement  in  the  market  will  generally  have  a  secondary  move- 
ment in  the  opposite  direction  of  at  least  three-eighths  of  the 
primary  movement.  If  a  stock  advances  ten  points,  it  is  very 
likely  to  have  a  relapse  of  four  points  or  more.  The  law 
seems  to  hold  good  no  matter  how  far  the  advance  goes.  A  rise 
of  twenty  points  will  not  infrequently  bring  a  decline  of  eight 
points  or  more. 

"It  is  impossible  to  tell  in  advance  the  length  of  any  primary 
movement,  but  the  further  it  goes,  the  greater  the  reaction 
when  it  comes,  hence  the  more  certainty  of  being  able  to  trade 
successfully  on  that  reaction. 

"A  method  employed  by  some  operators  of  large  experience  is 
that  of  responses.  The  theory  involved  is  this:  The  market  is 
always  under  more  or  less  manipulation.  A  large  operator  who 
is  seeking  to  advance  the  market  does  not  buy  everything  on  the 
list,  but  puts  up  two  or  three  leading  stocks  either  by  legitimate 
buying  or  by  manipulation.  He  then  watches  the  effect  on 
the  other  stocks.  If  sentiment  is  bullish,  and  people  are  dis- 
posed to  take  hold,  those  who  see  this  rise  in  two  or  three  stocks 
immediately  begin  to  buy  other  stocks  and  the  market  rises  to 
a  higher  level.  This  is  the  public  response,  and  is  an  indication 
that  the  leading  stocks  will  be  given  another  lift  and  that  the 
general  market  will  follow. 


38      THE  STOCK  MARKET  BAROMETER 

"If,  however,  leading  stocks  are  advanced  and  others  do  not 
follow,  it  is  evidence  that  the  public  is  not  disposed  to  buy.  As 
soon  as  this  is  clear  the  attempt  to  advance  prices  is  generally 
discontinued.  This  method  is  employed  more  particularly  by 
those  who  watch  the  tape.  But  it  can  be  read  at  the  close  of 
the  day  in  our  record  of  transactions  by  seeing  what  stocks  were 
put  up  within  specified  hours  and  whether  the  general  market 
followed  or  not.  The  best  way  of  reading  the  market  is  to 
read  from  the  standpoint  of  values.  The  market  is  not  like 
a  balloon  plunging  hither  and  thither  in  the  wind.  As  a  whole, 
it  represents  a  serious,  well-considered  effort  on  the  part  of  far- 
sighted  and  well-informed  men  to  adjust  prices  to  such  values 
as  exist  or  which  are  expected  to  exist  in  the  not  too  remote 
future.  The  thought  with  great  operators  is  not  whether  a 
price  can  be  advanced,  but  whether  the  value  of  property  which 
they  propose  to  buy  will  lead  investors  and  speculators  six 
months  hence  to  take  stock  at  figures  from  ten  to  twenty  points 
above  present  prices. 

"In  reading  the  market,  therefore,  the  main  point  is  to  dis- 
cover what  a  stock  can  be  expected  to  be  worth  three  months 
hence  and  then  to  see  whether  manipulators  or  investors  are 
advancing  the  price  of  that  stock  toward  those  figures.  It  is 
often  possible  to  read  movements  in  the  market  very  clearly  in 
this  way.  To  know  values  is  to  comprehend  the  meaning  of 
movements  in  the  market." 

There  are  assumptions  here  to  which  modifications 
might  be  offered,  but  there  is  no  need.  It  would  be 
impossible  to  show,  except  by  the  research  of  records 
covering  at  least  half  a  century,  that  there  are  as  many 
days  of  advance  as  of  decline.  The  information  would 
be  valueless  if  obtained.  It  amounts  to  saying  that 
heads  and  tails  will  equalize  themselves  if  a  coin  is 
spun  a  sufficient  number  of  times. 

But  what  may  be  commended  is  Dow's  clarity  and 


DOW'S  THEORY  APPLIED  39 

sterling  good  sense.  What  he  had  to  say  was  worth 
saying  and  he  stopped  when  he  had  said  it — a  rare 
virtue  in  editorial  writing.  His  feeling  for  the  essen- 
tial fact  and  for  the  underlying  truth,  without  which 
the  fact  is  bare  and  impertinent,  will  be  readily  re- 
marked. He  dealt  with  speculation  as  a  fact,  and  could 
still  show  forth  its  truth  without  profitless  moralizing, 
or  confusing  it  with  gambling.  It  will  be  well  to  imi- 
tate his  point  of  view  in  further  discussion,  both  on 
his  theory  and  on  the  immense  and  useful  significance 
of  the  stock  market  generally. 


MAJOR  MARKET   SWINGS 

IT  may  be  said,  in  continuing  the  discussion  of  what 
Charles  H.  Dow  actually  published  in  the  columns 
of  The  Wall  Street  Journal,  on  his  now  well-known 
theory  of  the  stock  price  movement  as  shown  by  the 
averages,  and  it  must  be  emphasized,  that  he  was  con- 
sciously devising  a  scientific  barometer  for  practical 
use.  Remember  the  difference  between  the  thermom- 
eter and  a  barometer.  The  thermometer  records  actual 
temperature  at  the  moment,  just  as  the  stock  ticker 
records  actual  prices.  But  it  is  essentially  the  busi- 
ness of  a  barometer  to  predict.  In  that  lies  its  great 
value,  and  in  that  lies  the  value  of  Dow's  Theory. 
The  stock  market  is  the  barometer  of  the  country's, 
and  even  of  the  world's,  business,  and  the  theory  shows 
how  to  read  it. 

The  Averages  Sufficient  In  Themselves 

It  stands  alone  in  this  respect,  for  a  sufficient  reason. 
Wall  Street  has  been  called  "the  muddy  source  of  the 
nation's  prosperity,"  and  we  need  not  concern  our- 
selves with  question-begging  adjectives.  The  sum  and 
tendency  of  the  transactions  in  the  Stock  Exchange 
represent  the  sum  of  all  Wall  Street's  knowledge  of  the 
past,  immediate  and  remote,  applied  to  the  discount- 
ing of  the  future.  There  is  no  need  to  add  to  the 
averages,  as  some  statisticians  do,  elaborate  compila- 

4* 


MAJOR  MARKET  SWINGS  41 

tions  of  commodity  price  index  numbers,  bank  clear- 
ings, fluctuations  in  exchange,  volume  of  domestic  and 
foreign  trade  or  anything  else.  Wall  Street  considers 
all  these  things.  It  properly  regards  them  as  experi- 
ence of  the  past,  if  only  of  the  immediate  past,  to 
be  used  for  estimating  the  future.  They  are  merely 
creating  causes  of  the  weather  predicted. 

It  is  a  common  superstition,  exemplified  in  the  Pujo 
Committee's  inquiry  into  some  supposed  supercontrol 
of  banking  and  finance,  that  "powerful  interests"  in 
Wall  Street  exist  which  have  a  sort  of  monopoly  of 
knowledge  and  use  it  to  their  own  nefarious  ends. 
The  stock  market  is  bigger  than  all  of  them,  and  the 
financial  interests  of  Wall  Street  are  seldom  combined 
except  momentarily  to  stop  a  panic,  as  in  the  crisis  of 
1907.  Taken  separately,  or  even  in  temporary  alli- 
ance, these  interests  are  often  wrong  in  their  estimate 
of  the  stock  market.  In  the  days  of  H.  H.  Rogers  and 
the  supposedly  all-powerful  activities  of  what  was 
called  the  Standard  Oil  group,  I  have  known  that 
group  wrong  on  stocks  for  months  and  even  years 
together.  There  was  no  shrewder  judge  of  business 
conditions  as  affecting  great  enterprises  than  Henry 
H.  Rogers,  but  I  have  heard  him  argue  seriously  that 
it  was  not  he  that  was  wrong  but  the  stock  market 
and  the  headstrong  public. 

Bigger  Than  any  Manipulation 

In  the  price  movements,  as  Dow  correctly  saw,  the 
sum  of  every  scrap  of  knowledge  available  to  Wall 


42      THE  STOCK  MARKET  BAROMETER 

Street  is  reflected  as  far  ahead  as  the  clearest  vision 
in  Wall  Street  can  see.  The  market  is  not  saying  what 
the  condition  of  business  is  to-day.  It  is  saying  what 
that  condition  will  be  months  ahead.  Even  with  ma- 
nipulation, embracing  not  one  but  several  leading 
stocks,  the  market  is  saying  the  same  thing,  and  is 
bigger  than  the  manipulation.  The  manipulator  only 
foresees  values  which  he  expects  and  hopes,  sometimes 
wrongly,  the  investing  public  will  appreciate  later. 
Manipulation  for  the  advance  is  impossible  in  a  pri- 
mary bear  market.  Any  great  instances  of  designed 
manipulation — and  they  are  few  in  number — occurred 
in  a  primary  bull  market,  necessarily  so  because  the 
market  sees  more  than  the  manipulator.  A  personal 
experience  of  not  only  Wall  Street  but  other  great 
markets  has  taught  that  manipulation  in  a  falling  mar- 
ket is  practically  non-existent.  The  bear  trader  carries 
his  own  letter  of  marque,  and  fights  for  his  own  hand. 
A  major  bear  swing  has  always  been  amply  justified 
by  future  events,  or  for  exception,  as  in  1917,  by  terri- 
fying future  possibilities. 

Writing  in  a  Bull  Market 

Starting  feebly  near  the  end  of  June,  1900,  with  a 
pitifully  small  volume  of  transactions,  four  months 
before  the  re-election  of  McKinley,  a  bull  market 
developed  which  covered  a  period  of  more  than  twenty- 
six  months.  This  was  interrupted  by  the  May  panic 
of  1901,  arising  out  of  the  Northern  Pacific  corner, 
proving  to  be  only  a  secondary  downward  swing  of  a 


MAJOR  MARKET  SWINGS  43 

typical,  if  violent,  kind.  It  was  during  the  course  of 
this  bull  market  that  Dow  wrote  the  editorials  in  The 
Wall  Street  Journal  to  which  reference  has  here  been 
freely  made  because  they  contain  the  substance  of  his 
theory.  He  had  designed  a  barometer  for  practical 
use,  and  it  is  characteristic  of  the  man  that  he  pro- 
ceeded to  apply  it,  to  find  out  if  it  had  the  vital  quality 
of  dependable  forecast.  It  is  a  pity  that  he  could  not 
have  lived  to  test  it  in  the  twelve  months'  bear  market 
which  followed.  All  subsequent  market  swings,  up  or 
down,  have  proved  the  value  of  his  method. 

Throughout  that  bull  market  his  forecasts  were 
remarkably  accurate,  if  necessarily  general  and  not 
applied  to  particular  stocks  or  small  groups.  He  was 
correct  in  the  essential  matter  of  the  adjustment  of 
prices  to  values.  His  concluding  editorials  were  pub- 
lished in  July,  1902,  not  long  before  his  death.  In 
those  he  foresaw  that  prices  were  outrunning  values, 
and  that  within  a  few  months  the  market  would  begin 
to  predict  a  contraction  in  railroad  earnings,  at  least 
a  slower  development  in  the  great  industrial  groups, 
and  contraction  of  trade  elsewhere. 

Primary  Movements 

It  will  be  well  to  give  here  the  major  swings  from 
the  time  Dow  wrote  to  the  end  of  the  bear  market 
which  culminated  in  1921.  They  are  as  follows: 

1.  Up.  June,  1900,  to  Sept.,  1902. 

2.  Down.  Sept.,  1902,  to  Sept.,  1903. 

3.  Up.  Sept.,  1903,  to  Jan.,  1907. 

4.  Down.  Jan.,    1907,  to  Dec.,  1907. 


44    THE  STOCK  MARKET  BAROMETER 

5.  Up.  Dec.,  1907,  to  Aug.,  1909. 

6.  Down.  Aug.,  1909,  to  July,   1910. 

7.  Up.  July,   1910,  to  Oct.,  1912. 

8.  Down.  Oct.,   1912,  to  Dec.,  1914. 

9.  Up.  Dec.,  1914,  to  Oct.,  1916. 

10.  Down.  Oct.,  1916,  to  Dec.,  1917. 

11.  Up.  Dec.,  1917,  to  Oct.-Nov.,  1919. 

12.  Down.  Nov.,  1919,  to  June-Aug.,  1921. 

13.  Up.  Aug.,  1921,  to  Mar.,  1923. 

14.  Down.  Mar.,  1923,  to  Oct.,   1923. 

15.  Up.  Oct.,  I9238  to 

If  the  late  J.  Pierpont  Morgan  said  that  he  was  "a 
bull  on  the  United  States,"  this  exhibit  confirms  his 
judgment.  In  that  period  of  twenty-three  years  the  bull 
markets  lasted  rather  less  than  twice  as  long  as  the  bear 
markets.  The  average  duration  of  seven  major  bull 
swings  is  twenty-five  months;  while  the  average  dura- 
tion of  seven  major  bear  swings  is  fifteen  months. 

It  will  be  noted  from  the  table  that  the  longest 
major  swing  upward  was  that  from  September  22, 
1903,  to  January  5,  1907.  The  actual  top  of  the 
averages  was  January  22,  1906,  with  a  subsequent 
irregular  decline  of  some  months  and  a  like  irregular 
recovery,  all  within  the  year  1906,  to  a  figure  close 
to  the  old  high  point.  This  is  therefore  taken  as  the 
end  of  that  primary  movement,  although  t'he  secondary 
swing  of  1906  was  by  far  the  most  extended  of  which 
we  have  any  record.  This  exceptional  year,  of  which  the 
San  Francisco  earthquake  was  the  feature,  will  be  fully 
discussed  in  a  subsequent  chapter.  The  other  five  bull 
markets  show  periods  of  from  something  over  nineteen 
months  to  a  few  days  less  than  twenty-seven  months. 


MAJOR  MARKET  SWINGS  45 

Startling  Predictions 

The  longest  of  the  six  bear  markets  here  illustrated 
extended  to  nearly  twenty-seven  months,  including  the 
outbreak  of  the  Great  War  and  the  hundred  days'  clos- 
ing of  the  Stock  Exchange,  culminating  immediately 
before  Christmas,  1914.  That  was  a  black  Christmas, 
as  some  of  us  may  happen  to  remember;  but  it  was 
followed,  in  1915,  by  the  tremendous  boom  in  the 
production  of  material  for  the  combatants  in  a  war 
which  America  had  not  then  entered — a  boom  which 
the  stock  market  predicted  with  the  greatest  accuracy 
at  a  time  when  the  business  of  the  country  was  hardly 
beginning  to  grasp  its  significance. 

Two  of  these  six  bear  markets  did  not  last  quite  a 
year,  one  of  them  less  than  a  month  more,  and  one 
of  them  less  than  fifteen  months.  There  seems  suffi- 
cient material  here  to  say  that  a  bear  market  is  nor- 
mally appreciably  shorter  than  a  bull  market;  perhaps 
as  secondary  downward  swings  in  a  primary  rising 
average  are  short  and  sharp,  with  a  halting  recovery 
consuming  a  longer  time  than  the  decline. 

The  Market  Is  Always  Right — 

It  will  be  shown  at  a  later  stage  that  throughout 
these  great  market  movements  it  was  possible  from 
the  stock  market  barometer  to  predict,  some  valuable 
distance  ahead,  the  development  of  the  business  of  the 
country.  These  discussions  would  fail  in  their  purpose 
if  they  did  not  make  the  subject  clear  to  the  unfinan- 
cial  layman — interesting  to  the  man  who  never  bought 


46     THE  STOCK  MARKET  BAROMETER 

a  share  of  speculative  stock  in  his  life.  A  barometer 
is  a  necessity  for  all  vessels  at  sea,  from  the  smallest 
coasting  schooner  to  the  Aquitania.  It  means  as  much, 
and  even  more,  to  the  "Bolivar"  of  Kipling's  ballad, 
"swamping  in  the  sea,"  watching,  in  dispair, 

"Some  damned  liner's  lights  go  by,  like  a  grand  hotel" 

as  it  does  to  the  navigating  officers  on  the  liner's 
bridge.  There  is  no  business  so  small  that  it  can  afford 
to  disregard  the  stock  market  barometer.  Certainly 
there  is  no  business  so  large  that  it  dare  disregard  it. 
Indeed  the  most  serious  mistakes  in  the  management 
of  great  business  have  come  from  a  failure  of  these 
navigators  of  the  great  liners  of  the  sea  of  commerce 
to  take  heed  when  the  passionless,  disinterested  stock 
market  called  their  attention  to  bad  weather  ahead. 

— and  Never  Thanked 

When,  in  the  United  States  Senate,  the  late  Senator 
Dolliver,  reading  an  editorial  of  The  Wall  Street  Jour- 
nal, said,  "Listen  to  the  bloodless,  verdict  of  the 
market  place,"  he  saw  the  merciless  accuracy  of  that 
verdict;  because  it  is,  and  necessarily  must  be,  based 
upon  all  the  evidence,  even  when  given  by  unconscious 
and  unwilling  witnesses. 

No  wonder  the  rural  politician  can  so  easily  make 
Wall  Street  the  scapegoat  for  depressing  conditions, 
affecting  his  farmer  constituents  no  more  than  the  rest 
of  us.  Wall  Street  is  guilty  in  their  eyes,  for  they  are 
willing  enough  to  hold  Wall  Street  responsible  for  a 


MAJOR  MARKET  SWINGS  47 

condition  which  it  merely  foresaw  and  predicted.  It 
was  said  in  a  preceding  chapter  that  the  prophet  of 
calamity  will  make  himself  hated  in  any  case,  and 
hated  all  the  more  if  his  predictions  come  true.  But 
Wall  Street's  predictions  do  come  true.  Its  predictions 
of  prosperity,  duly  fulfilled  as  we  have  seen,  are  for- 
gotten. Its  predictions  of  adversity  are  remembered, 
and  by  none  more  than  the  man  who  ignored  those  pre- 
dictions and  is  therefore  the  more  bound  to  find  some- 
body other  than  himself  to  blame. 

Wall  Street  the  Farmer's  Friend 

Wall  Street  is  often  called  "provincial"  by  politi- 
cians and  others  actuated  by  an  unreasoning  sectional 
jealousy  of  the  necessary  financial  center  of  the  coun- 
try. The  country  can  have  only  one  such  center, 
although  the  framers  of  the  Federal  Reserve  Act, 
overloading  it  with  sectional  politics,  tried  hard  to 
make  twelve.  The  farmers  say,  or  their  political 
spokesman  says,  "What  does  Wall  Street  know  about 
farming?"  Wall  Street  knows  more  than  all  the 
farmers  put  together  ever  knew,  with  all  the  farmers 
have  forgotten.  It  can,  moreover,  refresh  its  memory 
instantly  at  any  moment.  It  employs  the  ablest  of  the 
farmers,  and  its  experts  are  better  even  than  those  of 
our  admirable,  and  little  appreciated,  Department  of 
Agriculture,  whose  publications  Wall  Street  reads  even 
if  the  farmer  neglects  them. 

The  stock  market  which  began  to  break  at  the  end 
of  October  and  the  beginning  of  November,  1919, 


48      THE  STOCK  MARKET  BAROMETER 

when  the  farmer  was  insanely  pooling  his  wheat  for 
$3  a  bushel  and  his  cotton  for  forty  cents  a  pound, 
knew  more  than  the  farmer  about  cotton  and  wheat. 
And  that  barometer  was  telling  him  then  to  get  out, 
to  sell  what  he  had  at  the  market  price  and  to  save 
himself  while  there  was  yet  time.  He  blames  Wall 
Street  and  the  Federal  Reserve  banking  system  and 
everyone  but  his  own  deluded  and  prejudiced  self. 
He  thinks  he  can  change  it  all  by  getting  his  Congress- 
man to  take  an  axe  to  break  the  barometer.  He  is 
trying  to  break  the  barometers  of  the  grain  trade  in 
Chicago  and  Minneapolis,  the  barometers  of  the  cotton 
trade  in  New  Orleans  and  New  York.  Twenty  years 
ago,  at  the  demand  of  her  farmers,  Germany  broke 
her  grain  barometer,  with  destructive  legislation. 
What  was  the  consequence?  She  had  to  construct  a 
new  barometer  on  the  old  plan,  and  it  was  the  farmers 
who  paid  for  it  in  advance  out  of  their  own  pockets. 
The  Germans  have  learned  to  let  free  markets  alone, 
a  thing  the  British  always  knew,  and  built  up  the  great- 
est empire,  with  the  widest  commerce  the  world  ever 
saw,  on  exactly  that  knowledge. 


Chapter  VI 

A  UNIQUE   QUALITY  OF   FORECAST 

THERE  are  two  Wall  Streets.  One  of  them  is 
the  Wall  Street  of  fact,  slowly  arriving  at  defi- 
nition out  of  a  chaos  of  misconception.  The  other 
is  the  Wall  Street  of  fiction;  the  Wall  Street  of  sen- 
sational newspapers,  of  popularity-hunting  politicians ; 
the  Wall  Street  of  false  dramatic  interpretation,  whose 
characters  are  no  more  real  than  the  types  of  the 
old-fashioned  melodrama  of  fifty  years  ago — those 
caricatures  which  have  had  an  astonishing  and  unintel- 
ligent revival  on  the  moving-picture  screen.  It  was 
felt  that  our  second  chapter  might  well  be  devoted  to 
that  popular  misconception,  Wall  Street  of  the  movies. 

Major  Movements  Are  Unmanipulated 

One  of  the  greatest  of  misconceptions,  that  which 
has  militated  most  against  the  usefulness  of  the  stock 
market  barometer,  is  the  belief  that  manipulation  can 
falsify  stock  market  movements  otherwise  authorita- 
tive and  instructive.  The  writer  claims  no  more 
authority  than  may  come  from  twenty-six  years  of 
stark  intimacy  with  Wall  Street,  preceded  by  prac- 
tical acquaintance  with  the  London  Stock  Exchange, 
the  Paris  Bourse  and  even  that  wildly  speculative  mar- 
ket in  gold  shares,  "Between  the  Chains,"  in  Johannes- 
burg in  1895.  But  in  all  that  experience,  for  what  it 


50      THE  STOCK  MARKET  BAROMETER 

may  be  worth,  it  is  impossible  to  recall  a  single  instance 
of  a  major  market  movement  which  depended  for  its 
impetus,  or  even  for  its  genesis,  upon  manipulation. 
These  discussions  have  been  made  in  vain  if  they  have 
failed  to  show  that  all  the  primary  bull  markets  and 
every  primary  bear  market  have  been  vindicated,  in 
the  course  of  their  development  and  before  their  close, 
by  the  facts  of  general  business,  however  much  over- 
speculation  or  over-liquidation  may  have  tended  to 
excess,  as  they  always  do,  in  the  last  stage  of  the 
primary  swing. 

A  Financial  Impossibility 

This  is  a  sweeping  statement,  but  I  am  convinced 
of  its  fundamental  truth.  When  James  R.  Keene 
took  up  the  task  of  marketing  two  hundred  and  twenty 
thousand  shares  of  Amalgamated  Copper,  for  the 
people  who  had  brought  about  that  amalgamation  but 
had  not  been  able  to  float  the  stock,  it  is  estimated  that 
in  the  course  of  distribution  he  must  have  traded  in 
at  least  seven  hundred  thousand  shares  of  that  stock. 
He  carried  the  price  to  above  par  to  realize  a  net  of 
ninety  to  ninety-six  for  his  employers.  This  was  a 
relatively  small  stock  capitalization;  but  let  us  assume 
that  some  syndicate,  larger  than  any  that  the  stock 
market  has  ever  seen,  necessarily  involving  the  co- 
operation of  all  the  great  banking  institutions,  under- 
took to  manufacture  the  general  bull  market  without 
which  Keene's  efforts  would  have  been  worse  than 
wasted.  Let  us  concede  that  this  super-syndicate  could 
afford  to  ignore  the  large  number  of  active  securities 


A  UNIQUE  QUALITY  OF  FORECAST     5 1 

outside  of  the  forty  active  stocks  taken  in  our  railroad 
and  industrial  averages  and  defy  all  trained  public 
opinion.  Let  us  assume  that  they  had  accumulated  for 
the  rise,  against  all  their  previous  practice  and  con- 
viction, without,  by  some  miracle,  arousing  suspicion, 
not  two  hundred  and  twenty  thousand  shares  of  stock, 
but  a  hundred  times  that  number. 

Anybody  who  learned  in  the  little  red  school  house 
that  two  and  two  make  four  must  see  that  we  are  here 
leading  ourselves  into  an  arithmetical  impossibility. 
This  syndicate  would  presumably  not  be  content  with 
less  than  a  forty-point  net  profit,  and  its  actual  trades, 
before  it  had  established  a  broad  general  market  even 
equivalent  to  that  Keene  established  for  Amalgamated 
Copper,  alone  would  therefore  amount  to  something 
like  one  hundred  and  twenty  million  shares,  which, 
taking  them  at  par,  would  involve  financing  to  the 
amount  of  many  billions  of  dollars — so  much  financing, 
in  fact,  that  the  great  banks  concerned  would  presum- 
ably relinquish  all  their  other  business  and  confine 
themselves  to  the  syndicate  operations  alone.  Such  a 
syndicate  could  not  have  done  this,  or  a  tithe  of  this, 
at  any  time  during  the  existence  of  our  national  bank- 
ing system.  Does  anybody  think  it  would  be  possible 
to  undertake  such  a  panic-breeding  operation  with  the 
assistance  of  the  Federal  Reserve  system? 

Where  Manipulation  Was  Possible 

To  state  the  terms  of  a  corresponding  bear  opera- 
tion, where  every  wealthy  member  of  the  syndicate  is 


52      THE  STOCK  MARKET  BAROMETER 

necessarily  already  a  large  holder  in  stocks,  bonds, 
real  estate  and  industrial  production,  would  reduce 
the  whole  thing  to  the  wildest  absurdity.  My  mind 
refuses  even  to  grasp  it.  Keene,  in  a  broad  bull 
market,  to  distribute  a  number  of  shares  amounting 
to  one-twenty-fifth  of  the  common  stock  alone  of  the 
United  States  Steel  Corporation,  had  behind  him  all 
the  wealth  and  influence  of  the  powerful  Standard 
Oil  group.  When  he  distributed  United  States  Steel 
common  and  preferred  he  had  behind  him  not  only 
the  great  Morgan  banking  influences  but  those  of 
every  group  that  came  into  that  steel  combination, 
with  the  general  approval  of  a  public  which  correctly 
recognized  a  wonderful  and  even  unprecedented 
expansion  in  production  and  trade.  But  even  with 
that  backing  could  he  have  multiplied  his  efforts  a 
hundredfold?  The  merchant,  the  banker,  the  manu- 
facturer who  studies  the  stock  market  barometer  with 
reference  to  the  major  swings,  can  dismiss  from  his 
mind  altogether  the  idea  that  they  are  falsified  by 
manipulation. 

Roger  W.  Babson's  Theory 

But  the  idea  is  widely  held.  There  is  no  intention 
here  to  arouse  or  encourage  controversy,  and  if  I  take 
an  example  from  Roger  W.  Babson  and  his  book  on 
Business  Barometers,  he  will,  I  am  sure,  readily 
understand  that  it  is  not  intended  in  criticism  or 
depreciation  of  his  highly  sincere  work.  It  is  only  fair 
to  Mr.  Babson  to  say,  also,  that  the  extract  I  give 


A  UNIQUE  QUALITY  OF  FORECAST     53 

here  was   published   in    1909    (the   italics   are    Mr. 
Babson's) : 

"A  slowly  sagging  market  usually  means  that  the  ablest  spec- 
ulators expect  in  the  near  future  a  period  of  depression  in 
general  business ;  and  a  slowly  rising  market  usually  means  that 
prosperous  business  conditions  may  be  expected,  unless  the  decline 
or  rise  is  artificial  and  caused  by  manipulation.  In  fact,  if  it 
were  not  for  manipulation,  merchants  could  almost  rely  on  the 
stock  market  alone  as  a  barometer,  and  let  these  large  market 
operators  stand  the  expense  of  collecting  the  data  necessary  for 
determining  fundamental  conditions.  Unfortunately,  however, 
it  is  impossible  by  studying  the  stock  market  alone  to  distinguish 
between  artificial  movements  and  natural  movements ;  therefore, 
although  bankers  and  merchants  may  watch  the  stock  market  as 
one  of  the  barometers,  yet  they  should  give  to  it  only  a  fair  and 
proportional  amount  of  weight." 

— Business    Barometers    Used    in    the    Accumulation    of 
Money  j  by  Roger  W.  Babson;  second  edition,  1910. 

Mr.  Babson's  Chart 

What  sort  of  barometer  should  we  have  if  we  had 
to  make  allowances  for  a  tube  of  mercury  that  was 
too  short,  or  for  a  general  lack  of  accuracy  in  the 
delicate  and  sensitive  mechanism  of  the  aneroid?  The 
stock  market  barometer  is  not  perfect,  or,  to  put  it 
more  correctly,  the  adolescent  science  of  reading  it  is 
far  from  having  attained  perfection.  But  it  is  not 
imperfect  in  the  sense  Mr.  Babson  here  assumes.  It 
does  discharge  its  function  of  prediction,  when  viewed 
over  any  reasonable  length  of  time,  with  almost 
uncanny  accuracy.  Let  us  take  a  few  examples  from 
Mr.  Babson's  own  picture  chart,  those  composite 
"plots"  above  and  below  a  consistently  rising  line  rep- 


54      THE  STOCK  MARKET  BAROMETER 

resenting  the  steady  increase  in  a  growing  country's 
wealth,  and  we  shall  see  how  the  stock  market  pre- 
dicted each  of  them  before  Mr.  Babson  had  the  mate- 
rial to  draw  them  in  the  squares  of  his  instructive  and 
striking  chart.  To  those  who  are  unfamiliar  with  a 
publication  so  interesting  it  may  be  said  that  he  divides 
his  chart  with  columns  for  each  month  of  the  year  ver- 
tically, and  completes  his  squares  horizontally  with 
numbered  lines  showing  the  area  covered  by  all  the 
factors  of  business,  above  or  below  a  gradually  rising 
middle  line  across  the  chart  representing  the  growing 
wealth  of  the  country. 

How  the  Stock  Market  Predicted 

It  will  be  observed  that  where  these  areas  are  shal- 
low they  tend  to  become  broader  in  time  consumed, 
and  where  the  time  to  complete  the  area  is  less  the 
depression  or  expansion  is  deeper  or  higher,  as  the  case 
may  be,  the  black  areas  above  or  below  being  assumed 
to  balance  each  other,  at  least  approximately.  One  of 
these  black  areas  of  depression  shown  in  the  Babson 
chart  began  in  1903,  only  developing  recognizable 
space  in  the  latter  part  of  that  year,  and  continued 
throughout  1904,  finally  emerging  above  the  line  of 
growing  wealth  in  the  earlier  part  of  1905.  The  stock 
market  anticipated  this  area  of  business  depression, 
for  a  primary  bear  swing  began  in  September,  1902, 
and  ran  until  the  corresponding  month  of  1903.  Mr. 
Babson's  area  of  depression  was  still  ruling  when  the 
market  became  mildly  bullish,  in  September,  1903,  and 


A  UNIQUE  QUALITY  OF  FORECAST     55 

strongly  bullish  before  the  following  June;  while  the 
Babson  area  of  depression  was  not  completed  till  the 
end  of  that  year — 1904.  The  Babson  chart  does  not 
show  any  great  degree  of  expansion  until  1906, 
although  it  foreshadows  it  in  September,  1905.  But 
the  stock  market  barometer  foresaw  all  Mr.  Babson's 
expansion,  and  the  long  bull  market  continued  up  to 
January,  1907,  overrunning  itself — a  tendency  of  bull 
markets  and  bear  markets  alike. 

A  True  Barometer 

Mr.  Babson's  area  of  expansion  reached  its  high 
maximum  in  1907,  when  a  bear  stock  market  swing 
had  already  set  in,  continuing  for  eleven  months  until 
early  December  of  that  year,  predicting  that  length  of 
time  ahead  of  Mr.  Babson's  truly  calculated  area  of 
depression,  which  was  deep,  but  not  long  in  duration, 
and  lasted  till  the  end  of  1908.  His  subsequent  expan- 
sion area  above  the  line  did  not  begin  to  show  itself 
in  market  strength  until  the  end  of  July  of  1908;  but 
the  stock  market  barometer  once  again  foretold  the 
coming  prosperity'  in  a  bull  market  which  had  its 
genesis  in  December,  1907,  and  its  culmination  in 
August,  1909,  beginning  from  that  time  to  predict 
with  equal  accuracy,  and  well  in  advance,  Mr.  Babson's 
next  period  of  depression. 

Surely  this  shows  that  the  stock  market  is  a  barom 
eter,  and  that  the  Babson  chart  is  more  strictly  a 
record,  from  which,  of  course,  people  as  intelligent  as 
its  industrious  compilers  can  draw  valuable  guidance 


56      THE  STOCK  MARKET  BAROMETER 

for  the  future.  To  use  a  much-abused  word,  the  stock 
market  barometer  is  unique.  You  will  remember  that 
"unique"  is  a  word  which  takes  no  qualifying  adjec- 
tive. Our  barometer  is  not  rather  unique,  or  almost 
unique,  or  virtually  unique.  There  is  just  one  of  it, 
and  it  cannot  be  duplicated.  It  does  predict,  as  this 
simple  illustration  has  shown,  the  condition  of  business 
many  months  ahead,  and  no  other  index,  or  combina- 
tion of  indices,  can  assume  to  do  that.  Our  highly 
scientific  and  competent  Weather  Bureau  often  ex- 
plodes the  fallacy  of  any  assumed  radical  change  in 
general  weather  conditions.  It  does  not  pretend  to 
go  back  to  the  glacial  age.  It  tells  us  that  there  have 
been  droughts  and  hard  winters  before,  coming  at 
uncertain  and  incalculable  intervals.  When  it  attempts 
specific  prophecy — a  single  particular  from  its  immense 
collection  of  generals — it  is  merely  guessing.  Does 
anybody  who  happened  to  be  in  Washington  at  the 
time  remember  the  "fair  and  warmer"  weather 
prophesied  over  the  Taft  inauguration?  I  went  over 
the  Pennsylvania  Railroad  on  the  following  day,  when 
the  storm  had  leveled  every  telegraph  pole  between 
New  York  and  Philadelphia.  It  was  even  said  that 
some  of  the  special  trains  had  so  far  missed  the  parade 
that  they  were  not  in  Washington  then.  Even  the 
aneroid  barometer  can  only  forecast  a  limited  number 
of  hours  ahead,  according  to  the  atmospheric  pressure. 

Cycles   Overestimated 

There  are  other  compilations,  and  that  of  Harvard 
University  will  be  noticed  in  a  more  appropriate  place. 


A  UNIQUE  QUALITY  OF  FORECAST     57 

I  am  inclined  to  think  that  all  attach  too  much  force 
to  the  cycle  theory,  very  much  as  we  have  seen  that 
Charles  H.  Dow  did  in  splitting  the  favored  ten-year 
cycle  into  an  assumed  but  non-existent  five-year  bear 
market  and  a  similar  five-year  bull  market.  But  Mr. 
Babson  would  tell  you  that  his  areas  of  expansion 
and  even  of  inflation,  extending  not  five  years  but  two 
years  or  less  than  three  in  point  of  time,  do  not  neces- 
sarily blow  their  tops  off  in  a  final  explosion  and  that 
the  bottom  does  not  drop  out  of  his  period  of  depres- 
sion. A  stock  market  crisis  may  occur  in  the  middle 
of  a  bull  market,  like  the  Northern  Pacific  panic  of 
1901;  or  a  near-panic,  with  a  development  more  seri- 
ous and  radical,  may  occur  in  the  course  of  a  major 
bear  swing  in  the  stock  market,  as  in  1907.  Mr.  Bab- 
son  correctly  shows  that  the  latter  was  followed  by 
a  business  depression  that  had  already  been  fore- 
shadowed in  the  downward  stock  market  movement. 
If  all  panics  and  industrial  crises  arose  from  the 
same  causes  and  could  be  predicted  with  the  suggested 
rythmical  certainty,  they  would  never  happen  because 
they  would  always  be  foreseen.  This  sounds  some- 
thing like  an  Irish  "bull,"  but  it  may  well  stand  as  a 
statement  of  the  fact.  Was  it  not  an  Irishman  who 
said  that  an  Irish  bull  differed  from  other  bulls  in  the 
respect  that  it  was  always  pregnant?  I  do  not  here 
go  deeply  into  this  question  of  cycles,  because  it  is 
abundantly  clear  that  the  stock  market  is  little  moved 
by  any  such  consideration. 


58      THE  STOCK  MARKET  BAROMETER 

Order  Is  Heaven's  First  Law 

If  Wall  Street  is  the  general  reservoir  for  the  col- 
lection of  the  country's  tiny  streams  of  liquid  capital, 
it  is  the  clearing  house  for  all  the  tiny  contributions  to 
the  sum  of  truth  about  the  facts  of  business.  It  cannot 
be  too  often  repeated  that  the  stock  market  movement 
represents  the  deductions  from  the  accumulation  of 
that  truth,  including  the  facts  on  building  and  real 
estate,  bank  clearings,  business  failures,  money  condi- 
tions, foreign  trade,  gold  movements,  commodity 
prices,  investment  markets,  crop  conditions,  railroad 
earnings,  political  factors  and  social  conditions,  but  all 
of  these  with  an  almost  limitless  number  of  other 
things,  each  having  its  tiny  trickle  of  stock  market 
effect. 

It  will  be  seen  from  this  how  true  the  postulate 
made  in  an  earlier  discussion  was  when  it  was  said 
that  nobody  in  Wall  Street  knows  all  the  facts,  to  say 
nothing  of  the  meaning  of  all  the  facts.  But  the 
impartial,  passionless  market  barometer  records  them 
as  certainly  as  the  column  of  mercury  records  the 
atmospheric  pressure.  There  is  nothing  fortuitous 
about  the  stock  market  movement,  and  I  think  I  have 
shown  that  it  cannot  to  any  profitable  extent  be  per- 
verted to  the  ends  of  deception.  There  must  be  laws 
governing  these  things,  and  it  is  our  present  purpose 
to  see  if  we  cannot  formulate  them  usefully.  Many 
years  ago  George  W.  Cable  said:  "What  we  call 
chance  may  be  the  operation  of  a  law  so  vast  that  we 
only  touch  its  orbit  once  or  twice  in  a  lifetime."  There 


A  UNIQUE  QUALITY  OF  FORECAST     59 

is  no  need  to  lose  ourselves  in  the  mazes  of  predestina- 
tion and  foreordination,  or  reduce  the  Westminster 
Confession  to  absurdity  by  saying  that  life  is  just  one 
damned  thing  after  another.  But  we  shall  all  recog- 
nize that  order  is  Heaven's  first  law,  and  that  organ- 
ized society,  in  the  Stock  Exchange  or  elsewhere,  will 
tend  to  obey  that  law  even  if  the  unaided  individual 
intelligence  is  not  great  enough  to  grasp  it. 


Chapter  VII 

MANIPULATION  AND   PROFESSIONAL   TRADING 

READERS  of  preceding  chapters  may  well  pause 
here  to  take  count  of  how  much  we  have  been 
able  to  infer,  and  how  much  of  our  inference  we  have 
been  able  to  prove,  starting  on  the  sound  basis  of 
Dow's  theory  of  the  stock  market.  We  have  satisfied 
ourselves  that  he  was  right  when  he  said  that  there  are 
in  progress  three  definite  movements  in  the  market — 
the  major  swing,  upwards  or  downwards;  its  occa- 
sional suspension  by  a  secondary  rally  or  reaction,  as 
the  case  may  be ;  and  the  incalculable,  and  for  our  pur- 
poses largely  negligible,  daily  fluctuation.  We  can 
satisfy  ourselves  from  examples  that  a  period  of  trad- 
ing within  a  narrow  range — what  we  have  called  a 
"line" — gaining  significance  as  the  number  of  trading 
days  increases,  can  only  mean  accumulation  or  distribu- 
tion, and  that  the  subsequent  price  movement  shows 
whether  the  market  has  become  bare  of  stocks  or  satu- 
rated with  an  oversupply. 

True  to  Form 

But  we  have  been  able  to  go  further  than  this.  From 
the  preceding  article  alone  we  see  that  every  major 
swing  is  justified  by  the  subsequent  condition  of  the 
country's  general  business.  It  has  neither  needed  nor 
received  manipulation.  The  market  consequently  has 

60 


PROFESSIONALS  AND  MANIPULATION    61 

often  seemed  to  run  counter  to  business  conditions,  but 
only  for  the  reason  which  represents  its  greatest  use- 
fulness. It  is  then  fulfilling  its  true  function  of  pre- 
diction. It  is  telling  us  not  what  business  is  to-day  but 
what  the  future  course  of  business  will  be.  News 
known  is  news  discounted.  What  everybody  knows 
has  ceased  to  be  a  market  factor,  except  in  the  rare 
instance  of  a  panic,  when  the  stock  market  is  con- 
fessedly taken  by  surprise. 

When  these  articles  appeared  in  serial  form  in  Bar- 
ron's,  the  national  financial  weekly,  I  included  the  fol- 
lowing inference,  based  upon  the  reading  of  our 
barometer,  on  September  18,  1921,  the  date  when  the 
quoted  paragraph  was  written.  It  appeared  on  No- 
vember 5,  1921.  It  was  no  guess,  but  a  scientific  deduc- 
tion from  sound  premises,  and  correctly  announced 
the  change  in  the  main  direction  of  the  market. 


"There  is  a  pertinent  instance  and  test  in  the  action  of  the 
current  market.  I  have  been  challenged  to  offer  proof  of 
the  prediction  value  of  the  stock  market  barometer.  With  the 
demoralized  condition  of  European  finance,  the  disaster  to  the 
cotton  crop,  the  uncertainties  produced  by  deflation,  the  unprin- 
cipled opportunism  of  our  lawmakers  and  tax-imposers,  all  the 
aftermath  of  war  inflation — unemployment,  uneconomic  wages 
in  coal  mining  and  railroading — with  all  these  things  over- 
hanging the  business  of  the  country  at  the  present  moment,  the 
stock  market  has  acted  as  if  there  were  better  things  in  sight.  It 
has  been  saying  that  the  bear  market  which  set  in  at  the  end 
of  October  and  the  beginning  of  November,  1919,  saw  its  low 
point  on  June  20,  1921,  at  64.90  for  the  twenty  industrials  and 
65.52  for  the  twenty  railroad  stocks." 


62      THE  STOCK  MARKET  BAROMETER 

A  Contemporary  Example 

At  the  beginning  of  the  last  week  of  August,  1921, 
it  looked  as  if  the  bear  market  might  be  resumed  by 
the  establishment  of  new  low  points  in  both  averages. 
But  remembering  that  the  averages  must  confirm  each 
other,  The  Wall  Street  Journal  said,  on  August  25th: 

"So  far  as  the  averages  are  concerned,  they  are  far  from 
encouraging  to  the  bull,  but  they  do  not  yet  jointly  indicate  a 
definite  resumption  of  the  main  bear  movement." 

The  railroad  stocks  were  forming  a  "line"  at  that 
time,  and  after  a  technical  break  of  a  fraction  of  a 
point  through  on  the  lower  side  it  was  resumed,  and 
no  new  low  point,  indicating  a  definite  resumption  of 
the  main  bear  movement,  was  given.  On  September 
2 ist,  after  a  remarkable  continuance  of  the  line  of 
probable  accumulation  in  the  railroad  stocks  and  a  con- 
firmatory rally  in  the  industrials,  The  Wall  Street 
Journal's  "Study  in  the  Price  Movement"  said: 

"It  is  beside  the  point  to  say  that  we  are  facing  a  hard  winter. 
The  stock  market  is  meaningless  if  it  does  not  look  beyond  such 
contingencies.  It  seems  to  be  forecasting  a  solid  foundation  for 
better  general  business  in  the  spring.  It  may  well  be  that  the 
stage  for  a  primary  bull  market  is  being  set." 

By  that  time  both  the  industrials  and  the  railroads 
had  well-developed  lines  of  presumed  accumulation,  and 
the  former  had  significantly  made  a  higher  point  than 
that  of  the  previous  rally.  The  Wall  Street  Journal's 
analysis  of  October  4th  said: 

"By  the  well-tried  methods  of  reading  the  stock  market 
averages,  only  a  decline  of  eight  points  in  the  industrial  average, 


PROFESSIONALS  AND  MANIPULATION     63 

and  nine  points  in  the  railroads,  or  below  the  low  figures  of  the 
main  bear  movement  recorded  June  2Oth,  would  indicate  a 
resumption  of  that  movement.  On  the  other  hand,  the  railroad 
stocks  alone  at  present  figures  would  need  to  advance  less  than 
a  point  to  record  the  repeated  new  high  for  both  averages  which 
would  indicate  a  primary  bull  market.  The  industrials  have 
already  recorded  that  point,  and  both  averages  have  shown  a 
remarkably  clear  and  distinct  line  of  accumulation  which  is 
likely  at  any  time  to  disclose  a  market  bereft  of  its  floating 
supply  of  stocks." 

In  the  last  paragraph  of  this  closely  reasoned 
analysis  it  was  said: 

"Prices  are  low  because  all  these  bearish  factors  our  critics 
adduce  have  been  discounted  in  the  prices.  When  the  market 
is  taken  by  surprise  there  is  a  panic,  and  history  records  how 
seldom  it  is  taken  by  surprise.  To-day  all  the  bear  factors  are 
known,  serious  as  they  admittedly  are.  But  the  stock  market 
is  not  trading  on  what  is  common  knowledge  to-day  but  upon 
the  sum  of  expert  knowledge  applied  to  conditions  as  they  can 
be  foreseen  many  months  ahead." 

Henry  H.  Rogers  and  His  Critics 

Here  is  the  application  of  our  theory,  and  the 
reader  can  judge  from  the  subsequent  course  of  the 
market  the  value  of  the  stock  market  barometer.  He 
can  even  make  the  same  analysis  for  himself,  given  the 
same  major  premise  and  carefully  tested  reasoning 
from  it. 

The  professional  speculator  might  well  encourage 
the  general  belief  that  he  is  invulnerable  and  invincible, 
even  if  an  ignorant  public  assumes  that  the  cards  are 
stacked  against  itself  and  that  the  professional  knows 


64      THE  STOCK  MARKET  BAROMETER 

their  backs  as  well  as  their  faces.  Many  years  ago 
the  late  Henry  H.  Rogers,  who  was  not  talking  for 
publication,  said  to  me :  "The  sensational  newspapers, 
which  are  always  attacking  John  D.  Rockefeller  and  his 
associates  for  their  wealth,  have  put  millions  into  the 
treasury  of  the  Standard  Oil  Company.  You  and  I 
know  that  we  are  not  omniscient  or  all-powerful.  But, 
by  editorial  innuendo  and  suggestion  in  cartoons,  the 
people  who  hold  us  up  to  popular  envy  and  hate  have 
created  exactly  that  impression.  When  everybody 
who  may  have  to  do  business  with  us  assumes  in 
advance  that  we  can  dictate  our  own  terms,  we  have 
an  invaluable  business  asset."  The  same  agitation 
brought  about  the  dissolution  of  the  Standard  Oil  into 
its  thirty-three  constituent  companies.  That  operation 
trebled  the  value  of  Standard  Oil  shares,  and,  inci- 
dentally, the  price  of  gasoline.  Perhaps  these  news- 
paper proprietors  were  holders  of  the  stock.  That 
was  before  the  era  of  the  Ford  car,  however,  and  they 
may  have  assumed  that  it  was  a  public  service  to  make 
the  rich  owner  of  a  motor  car  pay  more  for  his 
gasoline. 

A  Speculator's  Reasoning 

Assumption  of  an  unfair  advantage  for  the  profes- 
sional is  absolutely  baseless.  The  reasoning  of  a  pro- 
fessional like  Jesse  Livermore  is  merely  the  reasoning 
presented  in  this  and  preceding  articles,  backed  by  a 
study  of  general  conditions.  He  said  on  October  3, 
1921,  that  he  had  been  buying,  and,  giving  him  the 
credence  of  ordinary  courtesy  for  such  a  voluntary 


PROFESSIONALS  AND  MANIPULATION     65 

statement,  it  is  clear  that  he  was  trying  to  shape  in 
his  own  mind  what  the  investing  and  speculating  public 
would  think  at  a  date  as  far  ahead  as  he  could  see. 

This  is  not  manipulation.  These  speculators  are 
not  creating  any  false  market  or  deceptive  appearance 
of  activity  to  lure  the  public  into  the  game,  like  the 
"barker"  outside  a  Midway  show.  On  October  3d 
Jesse  Livermore  was  quoted  in  the  columns  of  Bar- 
ron's  as  saying  that  "all  market  movements  are  based 
on  sound  reasoning.  Unless  a  man  can  anticipate 
future  events  his  ability  to  speculate  successfully  is  lim- 
ited." And  he  went  on  to  add:  "Speculation  is  a 
business.  It  is  neither  guesswork  nor  a  gamble.  It  is 
hard  work  and  plenty  of  it." 

Dow's  Clear  Definition 

Let  us  compare  this  with  the  words  of  Charles  H. 
Dow  in  The  Wall  Street  Journal  twenty  years  before. 
In  the  editorial  of  July  20,  1901,  he  said: 

"The  market  is  not  like  a  balloon  plunging  hither  and  thither 
in  the  wind.  As  a  whole,  it  represents  a  serious,  well-consid- 
ered effort  on  the  part  of  farsighted  and  well-informed  men  to 
adjust  prices  to  such  values  as  exist  or  which  are  expected  to 
exist  in  the  not  too  remote  future.  The  thought  with  great 
operators  is  not  whether  a  price  can  be  advanced,  but  whethei 
the  value  of  property  which  they  propose  to  buy  will  lead  invest- 
ors and  speculators  six  months  hence  to  take  stock  at  figures 
from  ten  to  twenty  points  above  present  prices." 

Observe  how  the  none  too  deftly  expressed  thought 
of  Livermore  parallels  the  more  perfectly  shaped  defi- 
nition of  the  detached  and  dispassionate  Dow.  Ber- 


66      THE  STOCK  MARKET  BAROMETER 

nard  M.  Baruch,  after  the  war,  gave  evidence  before 
a  Congressional  committee  as  to  a  market  operation 
by  which  he  had  largely  profited.  He  showed  in  the 
simplest  manner  that  he  had  merely  analyzed  a  known 
cause  and  foreseen  clearly  its  probable  market  effect. 
He  showed,  what  nobody  who  knows  him  would  ques- 
tion, that  he  had  no  "inside  information,"  so  called, 
and  that  no  employee  in  a  Washington  department 
had  sold  the  secrets  of  his  office.  Wall  Street  holds 
such  secrets  as  of  little  value.  They  may  give  an  unfair 
advantage  so  far  as  individual  stocks  are  concerned, 
but  they  could  be  entirely  neglected  with  imperceptible 
loss,  even  if  the  secret  were  not  generally  as  worthless 
as  the  seller  of  it. 

A  Good  Loser — 

What  is  there  that  was  done  by  James  R.  Keene  or 
Jay  Gould,  by  Addison  Cammack  or  other  great  mar- 
ket figure  of  the  past,  which  could  not  have  been  done, 
in  the  fairest  way,  by  men  of  equal  brains  and  intelli- 
gence, willing  to  pay  the  price  of  arduous  study  for 
the  knowledge  necessary  to  success?  What  is  there 
that  Jesse  Livermore  or  Bernard  M.  Baruch  do  which 
is  open  to  criticism?  They  pay  the  seller  his  price,  but 
they  do  not  accept  stock  sold  "with  a  string  to  it." 
The  vendor  thinks  his  reasons  for  selling  as  good  as 
theirs  for  buying  what  he  sells.  If  he  were  a  jobber  in 
the  woolen  trade,  selling  his  investment  in  American 
Woolen  stock,  or  a  banker  selling  United  States  Steel 
common  on  the  devastating  foreign  competition  which 
he  thinks  he  foresees,  he  would  consider  his  own 


PROFESSIONALS  AND  MANIPULATION    67 

sources  of  information  better  than  those  of  the  specu- 
lators. They  take  the  same  risks  that  he  does.  They 
are  often  wrong,  but  they  do  not  whimper  about  it. 
I  have  known  many  operators  of  this  kind,  and  I  never 
heard  them  whine  when  they  lost,  or  boast  greatly 
when  they  won. 

— and  a  Bad  One 

But  the  little  gambler  who  takes  the  gutter  view  of 
Wall  Street  pits  his  wits  against  trained  minds,  not 
merely  those  of  the  speculators  and  the  professional 
traders  on  the  floor  of  the  Stock  Exchange,  but  the 
minds  of  men  whose  business  requires  them  to  study 
business  conditions.  This  kind  of  gambler  is  a  bad 
loser,  and  is  often  highly  articulate.  He,  or  those 
dependent  upon  him,  is  lucky  if  he  receives  such  a 
lesson  at  his  first  venture  that  he  confines  his  future 
relation  with  Wall  Street  to  denouncing  it  as  a  gam- 
bling hell.  It  would  be  all  that  if  the  stock  market  were 
made  by  him  or  people  like  him.  To  the  everlasting 
credit  of  the  country,  we  may  confidently  assume  that 
it  is  not. 

Refusing  a  Partnership  With  Jay  Gould 

Charles  H.  Dow,  who  knew  Jay  Gould  well  and 
enjoyed  his  confidence  as  much  as  any  newspaper  man 
of  the  time,  largely  because  of  his  incorruptible  inde- 
pendence, says  in  one  of  his  editorials  that  Gould 
based  his  position  in  the  stock  market  primarily  on 
values.  He  tested  that  market  with  purchases  of 
sufficient  stock  to  show  whether  there  was  a  public 


68      THE  STOCK  MARKET  BAROMETER 

response — whether  he  had  correctly  foreseen  the  public 
appreciation  of  values  which  he  thought  he  had  recog- 
nized. If  the  response  was  not  what  he  expected  he 
would  not  hesitate  to  take  loss  after  loss  of  a  point  or 
so,  in  order  to  reconsider  his  position  from  a  detached 
point  of  view.  Some  years  ago  there  was  a  pathetic 
derelict  in  New  Street,  one  of  the  unlovely  fringe  of 
any  speculative  market,  who  could  truthfully  say  that 
he  had  once  been  offered  a  partnership  by  Jay  Gould. 
I  have  missed  his  face  in  recent  years,  but  not  a  great 
many  years  ago  he  was  a  promising  young  member  of 
the  Stock  Exchange.  His  execution  of  orders  on  the 
floor  was  remarkably  good.  It  is  a  difficult  and  exact- 
ing task.  It  requires  about  that  combination  of  in- 
stantaneous judgment  and  action  which  would  mark  a 
star  player  in  big-league  baseball. 

To  this  broker  a  number  of  Jay  Gould's  orders  were 
entrusted.  No  broker,  it  is  needless  to  say,  saw  all  of 
them.  Gould  was  so  pleased  with  the  way  his  business 
was  done  that  he  sent  for  the  young  man  and  offered 
him  a  limited  partnership.  To  Mr.  Gould's  surprise, 
it  was  refused.  The  broker  actually  said:  "Mr. 
Gould,  I  have  executed  a  great  many  of  your  orders 
and  you  seem  to  me  to  make  more  losses  than  profits. 
That  is  not  a  business  I  want  to  share."  He  could  not 
see  that  his  vision  was  restricted  to  only  one  side  of 
Gould's  many-sided  activities.  Opportunity  knocked 
at  his  door — tried  to  kick  it  in — but  the  young  man 
showed  that  he  could  do  only  one  thing  well.  His 
administrative  judgment  would  have  been  worthless, 
as  indeed  it  afterwards  proved,  for  he  drifted  out  of 


PROFESSIONALS  AND  MANIPULATION    69 

the  Stock  Exchange  into  New  Street  and  from  there, 
I  suppose,  into  oblivion.  Truly,  many  are  called  but 
few  are  chosen. 

An    Intelligent    Trader 

Rare  talent  of  any  kind  commands  great  rewards 
for  the  reason  that  it  is  rare.  The  amateur  who  re- 
gards the  market  as  a  gamble  starts  wrong.  He  holds 
on  when  he  is  losing  and  takes  small  profits,  to  his 
continuing  regret,  when  the  market  is  going  his  way. 
The  speculators  he  envies,  those  he  charges  with 
cogging  the  dice  and  marking  the  cards,  exactly  reverse 
his  process.  However  strong  their  conviction  may  be 
they  run  quickly  when  the  market  does  not  agree  with 
them  or  justify  the  inferences  they  have  drawn.  They 
may  be,  as  Gould  often  was,  too  far  ahead  of  the  mar- 
ket. One  of  the  most  intelligent  men  I  ever  met  in 
Wall  Street,  not  long  dead,  was  a  former  teacher  and 
a  fine  classical  scholar,  whose  hobby  was  collecting 
rare  coins  but  whose  business  was  speculation.  He 
saved  no  market  turns  or  broker's  commissions  by  part- 
nership in  a  Stock  Exchange  house.  He  was  just  a 
speculator,  sitting  before  a  customers'  board  or  near 
a  stock  ticker.  And  yet  that  man,  by  judgment,  study, 
nerve  tempered  by  caution  and,  above  all,  a  readiness 
to  see  his  error  quickly,  never  made  less  than  $30,000 
a  year ;  dying  at  a  good  age,  leaving  a  comfortable  for- 
tune and  a  collection  of  rare  coins  which  brought  excel- 
lent prices. 

He  would  select  his  stocks  on  analyzed  value  and 
study  the  market  movement.  He  would  buy  with  con- 


70      THE  STOCK  MARKET  BAROMETER 

fidencc  but  always  well  within  his  means.  He  would 
take  a  two-point  loss  on  a  thousand  shares  of  stock 
without  hesitation  if  the  market  did  not  move  his 
way.  When  that  discouragement  happened  he  said 
that  he  could  not  form  a  correct  judgment  unless  he 
got  out  and  took  an  objective  view.  He  had  originally 
about  the  capital  which  would  have  been  necessary  to 
pay  for  the  education  of  a  doctor  or  a  lawyer,  or  to 
start  them  in  business.  He  gave  his  undivided  but  by 
no  means  selfish  attention  to  what  he  had  made  his 
business.  He  was  always  long  of  stocks  early  in  a  bull 
market,  and  in  its  last  stages  he  generally  made  a  trip 
to  Europe  to  add  to  his  collection  of  coins.  He  was 
no  solitary  instance.  I  could  name  others  like  him. 
But  I  am  not  advising  any  man  to  speculate,  even  if  he 
has  the  moral  stamina  to  comply  with  the  same  exact- 
ing requirements.  If  you  have  a  business  that  you 
like,  one  which  keeps  you  comfortably  with  a  margin 
for  the  unforeseen,  why  speculate  in  stocks?  I  don't. 

The  Dial  of  the  Boiler 

Some  intelligent  and  many  irrelevant  questions  have 
been  put  since  these  discussions  began,  and  one  of  them, 
which  has  something  of  both  qualities,  disputes  the 
economic  necessity  for  the  professional  speculator.  I 
am  not  to  be  drawn  into  a  discussion  of  academic  eco- 
nomics and  still  less  into  one  of  abstract  ethical  ques- 
tions. I  am  describing  the  stock  market  barometer  as 
it  is  and  the  great  and  useful  service  it  performs.  It 
is  necessary,  therefore,  to  explain  its  by  no  means  com- 


PROFESSIONALS  AND  MANIPULATION     71 

plicated  machinery.  It  is  neither  as  simple  as  the 
crude  three-foot  tube  with  its  column  of  mercury  nor 
so  complex  as  the  highly  perfected  aneroid  instrument. 
The  question  whether  I  would  be  willing  myself  to  dis- 
charge the  functions  of  a  professional  speculator  is 
beside  the/point.  We  do  not  need  to  go  back  to  the 
formal  logic  of  the  Greeks  twenty-four  centuries  ago 
to  know  that  there  can  be  no  argument  on  matters 
of  taste. 

Every  bit  as  important  as  production  is  distribution, 
and  distribution  of  capital  is  the  greatest  function  of 
Wall  Street.  The  professional  speculator  is  no  more 
superfluous  than  the  pressure  gauge  of  the  steam-heat- 
ing plant  in  your  cellar.  Wall  Street  is  the  great 
financial  power  house  of  the  country,  and  it  is  indis- 
pensably necessary  to  know  when  the  steam  pressure  is 
becoming  more  than  the  boilers  can  stand.  It  is  im- 
portant here  to  avoid  getting  our  metaphors  mixed, 
but  the  safety  valve  will  occur  to  anybody.  The  stock 
market  is  all  that  and  more;  and  the  professional 
speculator,  however  ignoble  or  material  his  motives 
may  be,  is  a  useful  and  highly  dependable  part  of  that 
machinery.  That  he  may  grow  rich  in  the  process  is 
neither  here  nor  there,  unless  we  are  to  adopt  the  bol- 
shevist  doctrine  that  personal  wealth  is  wicked.  There 
is  another  doctrine,  held  by  many  who  would  resent 
the  epithet  of  bolshevism,  which  is  in  any  country  much 
more  dangerous.  It  holds  wealth,  with  the  power  it 
brings,  as  a  thing  for  envy  and  not  for  emulation ;  that 
if  we  cannot  legislate  everybody  rich  it  is  demonstrably 
possible  to  legislate  everybody  poor.  One  short  way 


72      THE  STOCK  MARKET  BAROMETER 

to  that  end  would  be  to  eliminate  the  Stock  Exchange 
altogether.  But  so  long  as  it  exists  it  is  our  business  to 
understand  it.  Perhaps  in  so  doing  we  may  develop 
useful  suggestions  for  improving  the  barometer  and 
extending  its  usefulness. 


Chapter  VIII 

MECHANICS  OF  THE  MARKET 

IT  has  been  shown  that,  for  all  practical  purposes, 
manipulation  has,  and  can  have,  no  real  effect  in 
the  main  or  primary  movement  of  the  stock  market, 
as  reflected  in  the  averages.  In  a  primary  bull  or  bear 
market  the  actuating  forces  are  above  and  beyond 
manipulation.  But  in  the  other  movements  of  Dow's 
theory,  a  secondary  reaction  in  a  bull  market  or  the 
corresponding  secondary  rally  in  a  bear  market,  or  in 
the  third  movement  (the  daily  fluctuation)  which  goes 
on  all  the  time,  there  is  room  for  manipulation,  but 
only  in  individual  stocks,  or  in  small  groups,  with  a 
well-recognized  leading  issue.  A  raid  upon  the  oil 
group,  or  upon  the  bear  account  in  it,  with  special 
attention  to  Mexican  Petroleum,  may  easily  have  a 
striking  temporary  effect.  It  shakes  out  some  weak 
holders  or  it  forces  a  few  bears  to  cover,  as  the  case 
may  be.  This  sort  of  professional  "scalping"  is  often 
in  evidence  in  a  secondary  swing — for  good  reasons. 

The  Trader  and  the  Gambler 

Every  primary  market,  bull  or  bear,  tends  to  over- 
run itself.  As  the  traders  say,  there  gets  to  be  too 
much  company  on  the  bull  side ;  or  conversely,  the  "loan 
crowd"  shows  that  too  many  shorts  are  borrowing 
stocks.  There  is  even  a  premium  for  lending  them, 


74      THE  STOCK  MARKET  BAROMETER 

corresponding  to  what  is  called  a  "backwardation"  in 
London.  This  is  the  professional's  chance.  He  buys 
in  a  market  which  is  oversold  or,  with  testing  sales, 
he  tries  out  the  strength  of  a  market  which  has  been 
bought  not  wisely  but  too  well.  The  small  speculator, 
and  more  particularly  the  small  gambler,  suffers  at  the 
hands  of  the  professional.  He  is  a  follower  of  "tips" 
and  "hunches."  He  has  made  no  real  study  of  the 
things  in  which  he  trades.  He  takes  his  information 
without  discrimination  at  second  hand,  lacking  the  abil- 
ity to  distinguish  good  from  bad.  He  has  no  business 
in  the  market,  in  the  first  place,  and  it  could  get  along 
very  well  without  him.  It  is  a  great  mistake  to  sup- 
pose that  it  is  he,  or  people  like  him,  who  keep  the 
Stock  Exchange  houses  in  business.  Every  one  of  these 
will  tell  you  that  their  customers  are  becoming  better 
informed  all  the  time.  Of  course  if  ignorant  people 
will  sit  in  a  game  requiring  expert  knowledge,  against 
others  who  understand  the  game  perfectly,  they  can 
blame  their  losses  on  no  one  but  themselves.  They 
do,  in  fact,  audibly  blame  Wall  Street.  A  substantial 
part  of  the  time  of  most  brokers  is  consumed  in  pro- 
tecting people  from  themselves.  It  is  a  thankless  job. 
A  fool  and  his  money  are  soon  parted. 

Giving  a  Dog  a   Bad  Name 

But  it  must  be  obvious  that  this  is  no  part  of  the 
main  current  of  speculation.  It  bears  about  the  same 
relation  to  that  current  that  the  daily  fluctuation  does 
to  the  primary  market  movement.  There  are,  of 


MECHANICS  OF  THE  MARKET         75 

course,  varying  degrees  of  knowledge,  but  it  is  a  vital 
mistake  to  suppose  that  speculation  in  stocks  (for  the 
rise  at  least)  is  a  sort  of  gamble  in  which  no  one  can 
win  unless  there  is  an  equivalent  loss  by  somebody  else. 
There  need  be  no  such  loss  in  a  bull  market.  The 
weak  holders  who  are  shaken  out  in  the  secondary  re- 
actions miss  a  part  of  their  profits;  and,  in  the  culmina- 
tion of  such  a  movement,  a  great  many  people  who 
have  lost  sight  of  values  and  are  buying  on  possibilities 
only,  with  the  latent  hope  that  they  may  unload  on 
somebody  more  covetous  than  themselves,  are  apt  to 
get  hurt. 

So  far  as  blaming  Wall  Street  is  concerned,  it  seems 
to  have  become  a  case  of  giving  a  dog  a  bad  name  and 
hanging  him.  The  defaulting  bank  employee  usually 
pleads  something  of  the  kind.  All  his  transactions  and 
contracts  are  matters  of  record;  but  how  seldom  the 
court  asks  him  for  an  exact  statement  of  his  specula- 
tive account.  He  says  nothing  about  fast  women  and 
slow  horses,  or  the  many  other  devious  ways  of  spend- 
ing other  people's  money.  He  pleads  that  he  was 
"robbed  in  Wall  Street,"  and  sentimental  people  take 
him  back  to  their  hearts,  registering  horror  at  the 
temptations  of  the  wicked  financial  district,  whose 
simplest  functions  they  have  not  been  at  the  pains  to 
understand. 

A  small  and  unsuccessful  speculator,  chagrined  at 
his  inability  to  make  money  in  the  stock  market  but 
failing  to  understand  the  real  reason,  picks  up  a  vocabu- 
lary of  technical  phrases  which  is  apt  to  delude  people 
who  know  even  less  of  the  stock  market  than  himself. 


76      THE  STOCK  MARKET  BAROMETER 

He  is  fond  of  denouncing  the  "specialist"  and  the 
"floor  trader."  He  classes  them  with  the  croupiers 
of  a  gambling  house,  and  says  that  they  are  not  even 
as  respectable  as  that  because  their  dealer's  chance  is 
extortionately  larger.  To  take  the  floor  trader  first, 
it  may  be  pointed  out  that  his  small  but  real  advantage 
only  stands  him  in  good  stead  against  the  novice  who 
is  trying  to  snatch  quick  profits  in  an  active  market  by 
the  merest  guessing.  No  competent  broker  encourages 
the  outsider  to  do  anything  of  the  kind,  and  the  brokers 
of  my  fairly  exhaustive  acquaintance  in  Wall  Street 
do  their  best  to  get  rid  of  a  customer  who  is  apt  to 
be  a  liability  rather  than  an  asset,  and  is  always  a 
nuisance. 

The  Floor  Trader  and  the  Market  Turn 

There  is  no  intention  here  to  write  a  textbook  on 
the  practice  of  Wall  Street  and  the  Stock  Exchange. 
There  are  excellent  books  covering  that  field.  All  that 
is  necessary  is  to  make  sufficiently  clear  the  mechanics 
of  our  barometer,  and  especially  those  things  which 
may  be  assumed,  rightly  or  wrongly,  to  influence  it. 
It  is  sufficient  to  say,  therefore,  that  a  "floor  trader" 
is  necessarily  a  member  of  the  Stock  Exchange,  and  is 
usually  a  partner  in  a  brokerage  house.  He  un- 
affectedly operates  for  himself.  He  pays  himself  no 
commission,  and  he  is  at  an  advantage  over  the  outside 
speculator  in  the  matter  of  the  market  turn,  which  is, 
of  course,  the  difference  between  the  bid  and  asked 
price  in  the  market.  The  more  active  the  stock  the 
closer  this  turn  is,  but  it  may  be  averaged  at  a  quarter 


MECHANICS  OF  THE  MARKET         77 

of  one  per  cent.  Assuming  that  the  price  of  United 
States  steel  common  is  90%  bid  and  gol/2  asked,  the 
customer  who  gives  an  order  to  sell  cannot  expect  to 
get  better  than  90^4,  while,  if  he  wishes  to  buy,  he 
must  pay  903/2.  The  floor  trader  can  often  save  this 
turn  or  part  of  it  for  himself — not,  of  course,  against  a 
customer.  He  may  be  able  to  deal  at  90^  or  even  to 
sell  at  the  asked  price.  Whatever  he  does  has  its  effect 
in  the  daily  fluctuation.  In  practice  it  means  that  the 
floor  trader  can  afford  to  trade  for  a  quick  turn  where 
the  outsider  cannot.  In  daily  custom  the  trader  goes 
home  at  the  close  with  his  book  even,  not  hesitating  to 
take  an  occasional  loss,  or  glad  to  come  out  even. 

"Bucketing" 

It  is  obvious  then  that  the  floor  trader,  snatching  a 
turn  of  a  point  or  so,  has  an  advantage.  If  the  cus- 
tomer tried  to  do  it  he  would  have  the  broker's  com- 
missions of  a  legal  eighth  per  cent  each  way  against 
him,  with  the  market  turn  of  a  quarter  per  cent;  so 
that,  as  a  mere  gamble,  he  would  be  betting  heavy 
odds  on  an  even-money  chance.  A  "bucket  shop" 
would  encourage  him  to  do  that,  because  the  keeper 
of  such  an  establishment  works  on  the  theory  of  new 
customers  all  the  time,  fleecing  them  as  thoroughly  as 
possible  while  he  has  the  chance.  None  of  his  orders 
is  really  executed  in  the  stock  market;  so  that  he  him- 
self pockets  this  extortionate  dealer's  chance.  But  we 
are  considering  the  Stock  Exchange  itself,  and  its 
speculative  market  as  a  trade  barometer.  Bucketing  is 


78      THE  STOCK  MARKET  BAROMETER 

no  part  of  the  Stock  Exchange's  business,  and  the 
police  can  stop  it  elsewhere — if  they  choose. 

Old  and  Satisfied  Customers 

Commission  both  ways  and  the  market  turn  do  not 
amount  to  much  if  the  customer  is  buying  on  values, 
with  ample  margin,  or  with  the  ability  to  pay  for  his 
stock  outright,  together  with  the  tested  belief  that  the 
stock  he  has  bought  bids  fair  to  look  attractive  at 
much  higher  figures.  He  is  the  sort  of  customer 
the  Stock  Exchange  houses  strive  to  serve.  A  house 
which  was  in  continuous  business  since  1870  has  re- 
cently changed  its  name.  It  had  at  least  one  cus- 
tomer who  had  been  on  the  books  for  fifty  years,  and 
many  for  twenty  years  and  longer.  This  does  not 
look  as  if  the  outsider  always  lost  money  in  Wall 
Street,  or  as  if  the  conditions  of  business  made  losses 
inevitable. 

A  brokerage  house,  like  any  other  business,  works 
to  get  new  clients  all  the  time,  exactly  as  a  paper  or 
magazine  works  to  get  new  subscribers.  But  the  ex- 
perienced broker  will  tell  you  that  while  advertising 
methods  will  bring  the  customers,  nothing  but  disinter- 
ested service  will  keep  them.  I  have  often  noticed 
that  the  really  successful  man  in  Wall  Street  is  curi- 
ously inarticulate.  Experience  has  taught  him  to  keep 
his  tongue  between  his  teeth,  and  he  is  not  at  all  com- 
municative. The  unsuccessful  seem  to  be  unable  to 
keep  their  losses  to  themselves,  in  most  cases,  and  it 
is  usually  found  that  they  are  thus  articulate  from  a 


MECHANICS  OF  THE  MARKET         79 

radical  defect  in  character.     They  habitually  do  too 
much  talking  and  too  little  thinking. 

No  Apology  Offered  or  Required 

This  is  not  an  apology  for  the  stock  market.  Our 
old  friend,  our  unwilling  stepfather,  George  III,  was 
not  renowned  for  his  wit.  But  when  he  was  offered  the 
dedication  of  Bishop  Watson's  celebrated  Apology 
for  the  Bible  he  asked  if  the  Bible  needed  an  apology? 
Let  us,  therefore,  content  ourselves  with  merely  ex- 
plaining that  part  of  the  mechanism  of  the  stock  mar- 
ket which  should  be  understood  for  a  full  comprehen- 
sion of  the  nature  and  usefulness  of  the  barometer  of 
the  country's  business. 

"Specialists"  in  particular  stocks,  corresponding  in  a 
way  to  the  "jobber,"  or  more  nearly  the  "dealer"  in 
the  London  Stock  Exchange,  the  brokers  on  the  floor 
who  limit  their  transactions  to  one  or  two  active  issues 
and  are  entrusted  with  orders  in  those  issues  by  other 
brokerage  houses,  are  little  understood  and  much  vili- 
fied. It  is  falsely  assumed  that  they  habitually,  or  at 
least  occasionally,  abuse  their  confidential  position. 
The  specialist  has  "stop-loss"  selling  orders  in  a  num- 
ber of  stocks  at  a  point  or  so  below  the  market  price, 
from  brokers  instructed  to  limit  their  customers'  losses 
in  the  event  of  an  unexpected  decline.  It  is  suggested 
that  the  specialist,  for  his  own  advantage,  brings  about 
that  decline.  The  answer  is  that  even  the  suspicion 
of  such  dealing  would  cost  him  his  business  and  his 
reputation.  It  recently  cost  a  member  his  seat  on  the 
Exchange,  the  only  instance  I  recall. 


8o      THE  STOCK  MARKET  BAROMETER 

Transactions  on  the  floor  are  by  word  of  mouth, 
without  the  passage  of  a  written  contract  or  even  the 
presence  of  witnesses.  The  honor  of  the  parties  is 
absolute,  and  I  can  hardly  recall  a  case  where  it  was 
called  in  question.  There  must  necessarily  be  occa- 
sional misunderstandings,  but  these  are  referred  for 
adjustment  in  the  usual  way.  The  specialist  could  not 
stay  in  business  if  he  did  not  have  the  interests  of  the 
brokers  who  employ  him  as  much  at  heart  as  any  other 
agent  in  a  like  position.  His  very  living  and  stand- 
ing in  business  depend  upon  it. 

Professional  Trader's  Limited  Influence 

What  is  the  influence  of  the  active  bear  trader  on 
the  averages?  It  is  negligible  so  far  as  the  major 
movement  is  concerned,  a  small  factor  in  the  secondary 
swings  and  mainly  influential,  at  times,  in  particular 
stocks  in  the  least  considerable  movement,  the  daily 
fluctuation.  Such  operations  do  not  affect  our  barom- 
eter in  any  degree  worth  serious  consideration.  Re- 
member the  character  of  the  twenty  railroad  stocks 
and  the  twenty  industrials  used  in  the  two  averages. 
Every  one  of  them  complies  with  the  stringent  listing 
requirements  of  the  New  York  Stock  Exchange.  Each 
company  concerned  publishes  the  fullest  possible  figures 
of  its  operation,  at  frequent  intervals.  There  are  no 
"inside  secrets,"  of  market  value,  which  could  by  any 
possibility  affect  more  than  a  single  stock  out  of  forty. 

It  may  be  that  one  of  them  unexpectedly  passes  or 
increases  its  dividend.  The  effect  upon  that  particular 


MECHANICS  OF  THE  MARKET         8 1 

stock,  if  there  is  any  real  surprise  in  the  matter  (which 
is  highly  doubtful),  is  negligible  when  spread  over 
the  other  nineteen  stocks  of  the  same  group.  I  do  not 
recall  any  useful  illustrative  instance;  but  suppose  un- 
expected dividend  action  produced  a  fluctuation  of  ten 
points.  It  would  only  make  a  daily  difference  in  the 
average  of  half  a  point,  which  would  be  almost  in- 
stantly recovered  if  the  dividend  action  presaged  no 
broad  general  change  in  business  conditions.  If  there 
had  been  any  such  change  we  may  be  entirely  sure  that 
it  would  have  already  been  reflected  in  the  stock  mar- 
ket, which  would  know  far  more  about  it  than  that, 
or  any  board  of  directors. 

Short  Selling  Necessary  and  Useful 

A  discussion  on  the  morality  of  short  selling  would 
be  utterly  out  of  place  here.  It  is  true  that  the  bear 
cannot  profit  except  where  another  loses,  while  the 
bull  at  the  worst  reaps  a  profit  which  another  man 
might  perhaps  have  made  if  he  had  been  attending 
strictly  to  his  business.  But  every  free  market  for 
anything  is  helped  far  more  than  hurt  by  traders  will- 
ing to  sell  short.  If,  indeed,  there  were  not  this  liberty 
the  result  would  be  a  most  dangerous  market,  liable 
to  an  unsupported  panic  break  at  any  stage  of  its 
progress.  Voltaire  said  that  if  there  had  not  been  a 
God  it  would  have  been  necessary  to  invent  one.  It 
must  have  been  long  ago,  in  the  days  when  what  after- 
ward became  the  London  Stock  Exchange  did  its  busi- 
ness in  Jordan's  Coffee  House  off  Cornhill,  that  bear 
selling  was  invented. 


82      THE  STOCK  MARKET  BAROMETER 

It  soon  became  a  patent  necessity;  and  it  is  curious 
that  some  of  the  most  serious  breaks  in  the  London 
market  have  occurred,  not  in  the  wildly  speculative 
securities,  but  in  bank  stocks,  where  the  English  law 
prohibits  short  selling.  It  was  unsupported  pressure 
in  some  bank  stocks  which  helped  to  make  the  Baring 
crisis  of  1890  so  serious.  There  is  no  such  valuable 
support  for  a  falling  market  as  the  uncovered  bear 
account.  When  it  is  absent,  as  in  this  particular  in- 
stance, nothing  but  a  bankers'  combination  hastily 
improvised  can  check  the  devastating  decline.  As  the 
London  Stock  Exchange  was  reorganized  in  1922  on 
its  old  basis,  without  further  government  meddling 
and  regulation,  Parliament  will  repeal  this  law  and 
substitute  (as  a  protection  to  bank  stocks,  that  com- 
plete and  constant  publicity  which  is  always  the  public's 
best  safeguard. 

Protection  of  Listing  Requirements 

When  Charles  H.  Dow  wrote,  twenty  years  ago,  of 
speculation  generally,  and  incidentally  of  his  theory 
of  the  market  movement,  some  of  the  industrial  stocks, 
included  in  the  average  and  traded  in  freely  on  the 
floor  of  the  Stock  Exchange,  were  in  what  was  then 
called  the  unlisted  department.  It  would  be  difficult 
to  imagine  The  Wall  Street  Journal  speaking  to-day  of 
one  of  the  industrials  in  the  Dow-Jones  average  as  a 
blind  pool.  But  it  did  not  hesitate  to  apply  that 
epithet,  editorially,  to  the  American  Sugar  of  Henry 
O.  Havemeyer's  day.  The  elimination  of  the  New 


MECHANICS  OF  THE  MARKET         83 

York  Stock  Exchange's  unlisted  department  is  one  of 
the  most  creditable  instances  of  reform  from  within. 
It  was  bitterly  opposed  by  some  conservative  members 
of  the  Stock  Exchange,  mainly  those  who  profited 
largely  by  that  vicious  vested  interest.  An  ex-presi- 
dent of  that  institution,  now  dead,  took  upon  himself 
to  berate  me  loudly,  in  the  presence  of  his  customers, 
for  advocating  that  eminently  necessary  reform.  He 
said  that  such  agitators  were  driving  business  away 
from  the  Wall  Street  in  which  they  earned  their  liv- 
ing. He  threw  out  of  his  office  the  newspaper  and 
the  financial  news  service  with  which  I  was  and  am 
connected. 

But  his  own  customers  made  him  reinstate  both, 
with  humiliating  celerity.  American  Sugar  and  Amal- 
gamated Copper  and  the  other  formerly  unlisted  securi- 
ties are  still  dealt  in  on  the  floor  of  the  Exchange. 
Those  companies  saw  that  they  laid  their  management 
under  the  gravest  suspicion  by  a  refusal  to  comply 
with  the  terms  of  publicity  so  wholesomely  exacted 
from  reputable  companies.  Stock  Exchange  houses 
are  naturally  inclined  to  look  askance  at  reforms  ad- 
vocated from  outside.  But  I  have  never  heard  one 
of  them  even  suggest  the  restoration  of  the  unlisted 
department. 

Federal  Incorporation 

It  was  said  in  an  earlier  discussion  that  something 
further  might  be  done  for  the  protection  of  the  public, 
without  the  enactment  of  any  of  these  "blue-sky"  laws 
which  only  embarrass  honest  enterprise  without  seri- 


84     THE  STOCK  MARKET  BAROMETER 

ously  impeding  the  operations  of  the  crook.  In  this 
discussion  I  can  briefly  set  forth  the  sane  and  success- 
ful method  which  protects  the  speculator  and  investor 
in  Great  Britain.  Under  what  is  there  called  the  Com- 
panies (Consolidation)  Act  of  1908  the  London  Stock 
Exchange  is  enabled  to  deal  in  any  security  the  moment 
it  is  registered  at  Somerset  House,  London.  That 
registration  cannot  be  made  until  the  fullest  possible 
disclosure  of  purposes,  contracts,  commissions  and 
everything  else  has  been  made.  However  adventurous 
the  purposes  of  the  company  may  be,  the  speculator 
knows  all  about  them  from  the  start.  After  that,  under 
this  statute,  the  old  common-law  rule  of  caveat  emptor 
— let  the  buyer  beware — prevails.  It  is  properly  held 
that  the  buyer  can  protect  himself,  as  he  should,  when 
he  can  find  out  all  about  the  property,  its  origin  and 
its  present  conduct,  for  the  fee  of  a  shilling,  at  Somer- 
set House. 

There  would  doubtless  be  all  sorts  of  ignorant  oppo- 
sition to  Federal  incorporation  of  this  kind,  with  the 
law  enforced  and  the  public  protected  through  limita- 
tion in  the  use  of  the  mails.  But  I  am  convinced  that 
it  might  well  be  done,  and  should,  of  course,  be  done 
in  a  strictly  non-partisan  spirit.  To  the  utmost  of  its 
ability  the  New  York  Stock  Exchange  protects  its 
members  and  their  customers.  But  the  New  York 
Curb  Market  Association  is  simply  an  unlisted  depart- 
ment in  itself.  I  have  no  reason  to  believe  that  its 
government  is  not  capable  and  honest,  and  I  have  not 
a  word  to  say  against  its  membership.  But  sooner  or 
later  it  is  calculated  to  prove  a  source  of  danger  and 


MECHANICS  OF  THE  MARKET         85 

scandal.  If  any  of  its  members  imagine  that  they 
have  something  to  lose,  in  the  setting  forth  of  the 
absolute  and  original  facts  about  everything  in  which 
they  deal,  they  are  making  exactly  the  same  mistake 
that  ill-advised  members  of  the  New  York  Stock  Ex- 
change made  when  they  shirked  the  disagreeable  task 
of  compelling  a  number  of  industrial  corporations 
to  comply  with  the  listing  requirements,  on  pain  of 
being  stricken  from  the  list.- 

Real  Reform  from  Within 

Let  me  disclaim,  however,  the  intention  of  crusad- 
ing, or  any  bent  toward  that  blatant  and  ignorant 
"reform"  which  has  made  such  costly  experiments  in 
recent  years.  In  my  experience  of  it  the  standards 
of  the  Stock  Exchange  have  steadily  improved,  to  the 
permanent  advantage  of  the  investor  and  of  the  small 
speculator,  who  is,  after  all,  only  an  investor  in  embryo. 
Practices  were  customary  in  Dow's  day  which  would 
not  be  tolerated  now.  In  any  future  bull  market 
manipulation  on  the  scale  of  James  R.  Keene,  when 
he  distributed  Amalgamated  Copper,  would  be  im- 
practicable, for  the  reason  that  the  publicity  now 
required  by  the  Stock  Exchange,  in  the  accounts  of 
such  a  company,  would  make  it  impossible  to  persuade 
the  most  reckless  private  speculator  that  the  prospects 
of  the  new  combination  made  it  worth  four  times  its 
book  value,  on  any  expert  test.  Even  in  those  days 
"wash  sales"  were  largely  a  figment  of  the  public 
imagination,  and  "matched  orders"  were  declined  by 


86      THE  STOCK  MARKET  BAROMETER 

any  brokerage  house  of  repute  if  their  nature  was 
suspected.  The  Stock  Exchange  rule  against  fictitious 
transactions  is  obeyed  in  spirit  and  in  word.  It  was 
not  a  mere  letter  even  in  those  days,  whatever  it  might 
have  been  forty  years  ago,  when  the  infant  giant  of 
American  industry  was  only  awakening  to  conscious- 
ness of  his  strength. 


Chapter  IX 
"WATER"  IN  THE  BAROMETER 

EVERY  effort  has  been  made  to  simplify  these  dis- 
cussions. They  have  been  offered  with  the  most 
stringent  exclusion  of  extraneous  matter.  In  serial 
form  they  aroused  much  criticism  and  comment,  some 
of  it  illuminating  and  helpful.  But  old  preconceptions 
and  prejudices  still  survive.  One  critic,  whose  scanty 
knowledge  of  the  subject  appears  to  have  been  derived 
from  the  reading  of  perhaps  two  of  these  articles, 
says: 

"How  can  we  trust  your  barometer  if  we  cannot  trust  the 
stocks  which  the  Stock  Exchange  deals  in?  You  have  said 
nothing  about  overcapitalization.  What  about  water?" 


Water  is  more  unpopular  than  ever  in  the  United 
States  just  now.  But  the  financial  center  of  the  United 
States,  with  the  business  of  the  country  in  view,  is  far 
more  concerned  about  watered  labor  than  watered 
capital.  There  is  only  one  way  to  squeeze  the  water 
out  of  labor — the  factory  or  apartment  house  which 
cost  a  million  dollars  to  build  and  represents  only 
$500,000  of  real  value.  That  way  is  by  bankruptcy. 
Of  the  apartment  houses  that  were  built  in  New  York, 
during  a  period  of  high  wages  and  "ca'  canny"  which 

87 


88      THE  STOCK  MARKET  BAROMETER 

set  in  long  before  the  war,  very  few  have  not  passed 
through  a  stage  of  financial  reorganization,  due  to 
watered  labor  in  construction,  long  before  rents  began 
to  advance.  The  stock  market  has  a  short  and  simple 
method  of  dealing  with  water  in  stocks.  It  exists  for 
the  purpose  of  squeezing  that  water  out.  The  process 
does  not  involve  a  receivership. 

The  very  word  "water"  begs  the  question.  You 
may  call  the  capitalization  of  an  industrial  flotation 
"water"  because  you  do  not  see  the  potential  values 
of  a  great  creative  organization.  But  with  justice, 
and  better  knowledge,  the  late  J.  Pierpont  Morgan 
might  have  called  that  capitalization  intelligently  an- 
ticipated growth.  Whatever  it  may  be — and  I  shall 
give  an  example  from  the  most  striking  instance,  the 
capitalization  of  the  United  States  Steel  Corporation 
— the  stock  market  is  forever  adjusting  prices  to 
values.  The  water  soon  evaporates. 

Squeezing  Out  the  Water 

To  recapitulate,  we  are  studying  the  stock  market 
barometer,  having  established  the  fact  of  its  known 
and  orderly  movements — the  long  primary  swing,  the 
secondary  reaction  or  rally,  and  the  daily  fluctuation; 
and  to  do  this  we  are  taking  the  averages  of  two 
groups  of  stocks — twenty  active  industrials  and  twenty 
active  railroads.  All  adjustments  of  the  prices  of  these 
stocks  individually  must  primarily  be  based  upon 
values.  For  all  practical  purposes  the  Stock  Exchange 
is  an  open  market,  and  the  business  of  such  a  market 


"WATER"  IN  THE  BAROMETER        89 

is  to  adjust  conflicting  estimates  to  a  common  basis, 
which  is  expressed  in  the  price.  By  manipulation, 
James  R.  Keene  advanced  the  price  of  Amalgamated 
Copper  twenty  years  ago  to  one  hundred  and  thirty, 
and  obviously  the  group  of  financiers  which  offered  the 
stock  at  par  originally,  without  success,  assumed  one 
hundred  as  value  for  it.  The  stock  market  does  not 
make  its  adjustments  in  a  day.  But,  over  a  period 
which  seems  brief  in  retrospect,  it  knocked  one  hun- 
dred points  off  the  highest  figure  Amalgamated  Cop- 
per attained  in  a  general  bull  market. 

This  is  the  business  of  the  stock  market.  It  has  to 
consider  both  basic  values  and  prospects.  At  the  close 
of  a  major  downward  movement,  a  primary  bear  mar- 
ket, prices  will  have  passed  below  the  line  of  values. 
The  causes  of  the  liquidation  will  have  been  so  serious 
that  people  have  been  compelled  to  realize  their  hold- 
ings at  less  than  their  normal  worth;  less,  indeed, 
than  their  book  value — the  worth  of  the  company's 
assets,  that  is,  irrespective  of  productive  capacity  and 
good  will.  The  prices  of  the  standard  stocks  will  be 
injuriously  affected  by  the  prices  of  "cats  and  dogs" 
dealt  in  on  the  Curb  market,  many  of  them  of  such  a 
character  that  any  bank  would  refuse  them  as  collateral 
in  its  loans.  When  the  banks  are  compelled  to  call 
loans  made  on  Stock  Exchange  securities,  the  stocks 
of  tested  worth,  of  properties  competently  and  repu- 
tably managed,  will  be  the  first  to  suffer  because  it  is 
those  stocks  which  are  pledged  in  bank  loans.  The 
constantly  recruited  Curb  group  is  highly  speculative, 
but  trading  there  is  always  limited,  and  indeed  safe- 


90     THE  STOCK  MARKET  BAROMETER 

guarded,  by  the  large  margin  which  is  necessary  to 
carry  Curb  stocks. 

Stock  Profits  and  Income  Tax 

Conversely,  a  bull  market  starts  with  stocks  much 
below  their  real  value,  certain  to  be  helped  in  anticipa- 
tion by  the  general  improvement  in  the  country's  busi- 
ness which  the  stock  market  foresees  and  discounts. 
In  the  long  advance  values  will  be  gradually  overtaken, 
and  toward  the  close  of  the  advance  an  uninformed 
public,  incapable  of  recognizing  the  bargains  which 
were  offering  when  the  movement  started,  is  buying 
on  prospects  only.  Experienced  traders  in  Wall  Street 
say  that  when  the  elevator  boy  and  the  shoeblack  are 
asking  for  bull  tips  on  the  market  it  is  time  to  sell  and 
go  fishing.  When  I  sailed  for  Europe  early  in  October, 
1919,  to  report  on  financial  conditions  in  Britain  and 
Germany,  the  market  was  in  the  last  sanguine  stage 
of  a  long  bull  movement.  The  inflation  bull  argument 
then  was  most  curious.  It  was  that  the  people  who 
had  large  profits  would  not  sell,  and  could  not  sell, 
because  in  turning  those  paper  profits  into  cash  they 
would  show  such  a  large  earning  of  income  for  the 
year  that  the  tax-gatherer  would  take  a  prohibitive 
share  of  the  profits.  We  analyzed  this  fallacy  in  the 
smoking  saloon  of  the  Mauretania,  and  at  least  some 
of  the  business  men  on  board  concluded  to  divide  up 
with  Uncle  Sam.  The  argument  was  preposterous  in 
itself,  because  it  pictured  the  most  vulnerable  kind  of 
bull  account  that  it  would  be  possible  to  conceive.  It 
was  glaringly  up  to  be  shot  at,  and  the  poorest  marks- 


"WATER"  IN  THE  BAROMETER        9 1 

man  could  fill  it  full  of  holes.  Rough  seas  stove  in 
five  of  the  Mauretania's  lifeboats,  and  put  the  wire- 
less apparatus  out  of  commission  for  the  last  three 
days  of  that  voyage.  When  we  arrived  at  Cher- 
bourg we  learned  that  the  stock  market  itself  had 
begun  to  free  the  bulls  of  stocks  from  the  embar- 
rassment of  paying  excessive  income  tax.  They  had 
not  much  to  worry  about  in  that  respect  by  the  end 
of  the  year,  for  the  paper  profits  had  been  rapidly 
extinguished. 

Well-Distributed  Holdings 

There  is  no  way  of  permanently  holding  up  artificial 
prices  created  by  an  overbought  market.  One  great 
protection  to  the  public  is  in  widely  distributed  stock 
ownership.  When  a  single  group  in  Wall  Street  owns 
practically  all  of  the  stock  in  a  property  like  Stutz 
Motor,  that  group  can  call  the  market  price  anything 
it  chooses.  It  will  not  be  the  "market"  price  because 
there  will  be  no  real  market.  Abraham  Lincoln  pointed 
out  long  ago  that  you  could  not  talk  five  legs  onto  a 
dog  by  renaming  its  tail.  All  the  stocks  in  the  average 
have  shared  in  the  wide  and  healthy  distribution  of 
securities.  The  average  holding  of  Pennsylvania 
(which  has  the  greatest  capitalization  of  any  of  the 
railroads  in  our  average)  or  of  the  five  and  a  half 
million  shares  of  United  States  Steel  common  is  noth- 
ing near  one  hundred  shares  for  each  holder.  So  far 
as  the  public  is  concerned,  there  is,  indeed,  safety  in 
numbers. 


92      THE  STOCK  MARKET  BAROMETER 

"Valuation"  and  Market  Prices 

To  the  inquirer  quoted  at  the  beginning  of  this  article, 
who  asks,  "What  about  water?"  we  may  answer,  well, 
what  about  it?  He  cannot  show  us  any  water  in  the 
averages.  We  may  go  further  and  tell  him  that  he 
cannot  show  us  any  water,  at  prices  and  not  at  the 
nominal  par,  in  the  whole  Stock  Exchange  list.  For 
the  railroads,  no  valuation  which  could  be  instituted  by 
Congress  and  carried  out  by  a  committee  of  the  Inter- 
state Commerce  Commission  could  begin  to  compare 
with  the  market  prices  of  the  securities  themselves, 
taken  in  a  normal  month  of  a  normal  year,  with  the 
prices  not  inflated  on  overestimated  prospects  or  de- 
flated by  forced  liquidation,  brought  about  largely  to 
protect  unsalable  securities  and  warehouse  receipts  not 
associated  with  the  railroads  or  the  standard  industrial 
companies  in  any  way. 

Every  scrap  of  intelligence  and  knowledge  available, 
uninfluenced  in  any  real  degree  by  manipulation,  has 
been  brought  to  bear  in  the  adjustment  of  the  stock 
market  prices.  Reproduction  value,  real  estate  value, 
franchises,  right  of  way,  good  will — everything  else — 
have  been  brought  into  the  free-market  estimate  in  a 
way  which  no  valuation  committee  appointed  by  Con- 
gress could  ever  attain.  The  Interstate  Commerce 
Commission's  valuation  of  a  railroad  has  merely  his- 
torical worth — if  it  has  any.  As  a  true  estimate  of 
the  property,  if  the  method  of  fixing  it  were  commonly 
just,  it  is  out  of  date  the  moment  it  is  printed,  or, 
indeed,  months  before  it  is  printed.  But  the  Stock 


"WATER"  IN  THE  BAROMETER        $3 

Exchange  price  records  the  value  from  day  to  day, 
from  month  to  month,  from  year  to  year,  from  bull 
market  to  bear  market,  from  one  of  Jevons's  cycle 
dates  to  another;  and  the  bankers  of  America  and 
any  other  civilized  country  accept  that  valuation  and 
advance  real  money  on  it,  without  reference  to  the 
arbitrary  estimate  of  the  Interstate  Commerce  Com- 
mission. 

The  Fetish  of  Watered  Stock 

It  is  astonishing  to  what  depths  of  foolishness  the 
fetish  of  watered  stock  has  carried  this  country.  The 
capitalization  in  stocks  and  bonds  of  its  railroads, 
alleged  to  represent  water,  is  not  one-fifth  that  of  the 
railroads  of  the  British  Islands,  mile  for  mile.  It  is 
less  per  mile  than  that  of  any  European  country  or 
of  any  government  or  privately  owned  railroad  in 
Britain's  self-governing  colonies.  I  am  not  afraid  to 
go  on  record  with  the  statement  that  the  American 
railroads  are  uneconomically  undercapitalized,  on  their 
real  value.  The  charge  of  watered  stock  made  against 
the  listed  industrial  corporations  is  equally  absurd. 
The  stock  market  had  far  more  than  squeezed  out  the 
water  in  that  capitalization  at  the  Stock  Exchange 
prices  current  in  1921.  It  had  squeezed  blood. 

As  this  is  written,  United  States  Steel  common  is 
selling  under  $80  a  share.  But  stringent  analysis  of 
an  industrial  corporation  offering  the  most  exhaustive 
figures  of  any  like  company  in  the  world  gives  a  book 
value  to  the  common  stock  of  $261  a  share.  In  the 
twenty  years  of  its  history  it  has  put  upwards  of  a 


94      THE  STOCK  MARKET  BAROMETER 

billion  dollars  into  the  property  in  new  construction, 
and  so  little  is  this  watered  in  the  capital  that  this 
new  investment  out  of  earnings  is  represented  in  prop- 
erty account  by  only  $275,000,000.  The  quick  assets, 
largely  cash,  are  over  $600,000,000  alone,  something 
like  $120  a  share  with  the  whole  concern  scrapped. 
Where  is  the  water?  A  common  stock  capital  of 
$550,000,000  looks  large,  but  it  is  only  relatively  large. 
Was  not  Morgan  right  if  he  called  this  intelligently 
anticipated  growth?  If  his  spirit  could  revisit  the 
pale  glimpses  of  the  moon,  surely  he  would  be  aston- 
ished at  his  own  moderation. 

And  yet  the  distribution  of  the  United  States  Steel 
common  and  preferred  stocks,  made  in  the  major  swing 
of  a  great  bull  market,  was  brought  about  largely  by 
the  most  stupendous  manipulation  the  market  ever 
saw,  under  the  direction  of  the  late  James  R.  Keene. 
And  what  was  the  end  of  that  manipulation?  It  was 
to  sell  the  common  stock  at  fifty  and  the  preferred  stock 
at  par.  If  the  people  who  bought  at  those  prices  put 
the  stock  away  after  paying  for  it,  would  they  have 
anything  to  regret  even  at  the  low  market  prices  of 
August,  1921,  attained  after  a  major  bear  swing  of 
unusually  long  duration? 

Buying  on  Values 

Probably  some  one  will  charge  me  with  writing  a 
bull  argument  about  Steel  common,  because  I  set  this 
simple  illustration  before  the  public.  There  again  we 
have  the  inveterate  prejudice  against  Wall  Street. 


1  »  0  t     I     I  9  02    I    1   »   0  3  I    1  »  B  4   I    1  1   0  S       1   i  0  t        1  »  07        1  »   01        1  »  0  9        1 1   i  1  0         1  » 


A  COMPARISON  OF  THE  MOST  ACTIVE 


IZ        1913        It      4         1»t>    I    1   »1«    I    HI  7    I    1   »   II   I      1«11l1»2«       1!    ill         I  1  Ui 


I    1  »1  t    I    1  «  1  7    I    1  »  1  1    I    Itlll    '•!»>    Ili   It        1  »  «  J 


1CK— UNITED  STATES  STEEL  COMMON 


"WATER"  IN  THE  BAROMETER         95 

The  facts  I  have  stated  are  of  record,  accessible  to 
anybody,  perfectly  well  known  to  some  of  the  people 
at  least  who  were  selling  Steel  common  in  1921.  But 
they  were  selling  the  stock  because  they  needed  the 
money,  at  a  time  when  most  of  us  needed  money. 
When  the  Rothschild  of  the  days  of  Waterloo,  a  week 
before  the  result  of  that  battle  was  known,  was  buying 
British  consols  at  fifty-four,  a  friend  asked  him  how 
he  could  buy  with  such  confidence  on  an  outlook  so 
uncertain.  He  said  that  if  the  outlook  were  certain 
consols  would  not  be  selling  at  fifty-four.  He  knew 
that  with  that  uncertainty  they  must  necessarily  be  sell- 
ing below  their  value.  Everybody  needed  money  at 
the  same  time,  and  he  was  one  of  the  few  people  who 
had  any.  I  suppose  no  one  will  ever  know  how  Russell 
Sage  did  it,  but  he  could  lay  his  hands  upon  more  real 
money  in  a  panic  than  anybody  in  Wall  Street.  He 
believed  in  quick  and  liquid  assets,  short-time  paper 
maturing  all  the  time,  call  loans  and  deposits — every- 
thing which  could  be  turned  into  cash,  not  to  hoard 
but  to  buy  freely  when  people  who  had  lost  sight  of 
values  were  selling. 

A  Story  of  Russell  Sage 

All  sorts  of  stories  are  told  of  Russell  Sage  and  his 
extraordinary  frugality.  That  is  not  exactly  the  word 
I  would  use;  nor  would  I  call  it  miserliness,  for  he 
was  anything  but  a  miser.  I  remember  the  last  time 
I  ever  saw  him,  when  I  was  a  young  reporter,  or  at 
least  a  younger  reporter.  I  was  trying  to  find  out 
something  about  a  railroad  property  in  which  he  was 


96      THE  STOCK  MARKET  BAROMETER 

dominant  with  another  financier  of  nation  wide  noto- 
riety, or  reputation.  Lying  is  a  word  which  is  seldom 
used  (or  needed)  in  Wall  Street,  -and  it  would  be  bet- 
ter to  say  that  the  other  financier  had  given  me  infor- 
mation calculated  to  let  me  deceive  myself  if  I  was 
not  exceptionally  wide-awake.  With  the  idea,  there- 
fore, of  seeing  if  Mr.  Sage's  terminological  inexacti- 
tude would  differ  from  his  comrade's,  with  enough 
significance  to  enable  me  to  deduce  something  from 
the  points  upon  which  the  two  fairy  tales  did  not  agree, 
I  went  over  to  see  Sage,  who  was  always  accessible  to 
the  newspaper  men. 

He  greeted  me  in  the  most  friendly  way,  as  indeed 
he  did  anybody  whose  visit  had  nothing  to  do  with 
money.  I  put  my  question  and  he  rapidly  changed 
the  subject.  He  said:  "Do  you  know  anything  about 
suspenders?"  I  was  exasperated,  but  I  replied  mod- 
estly that  I  did  not  know  any  more  about  them  than 
any  other  wearer.  "What  do  you  think  of  these?" 
said  Uncle  Russell,  handing  me  over  a  pair  certainly 
inferior  to  those  worn  by  reporters,  who  are  not,  or 
certainly  were  not  at  that  time,  given  to  undue  extrav- 
agance in  such  an  article  of  attire.  "What  about 
them?"  I  asked.  "Well,  what  do  you  think  of  them?" 
said  Sage;  "I  gave  thirty-five  cents  for  those."  Per- 
haps I  was  a  little  vindictive,  having  failed  to  secure 
even  the  poor  information  I  had  come  to  seek.  I 
said :  "You  were  robbed.  You  can  get  better  in  Hester 
Street  for  a  quarter."  Sage  looked  at  me  doubtfully. 
"I  don't  believe  it,"  he  said.  But  he  was  really  trou- 
bled. It  was  not  the  difference  of  ten  cents,  and  I 


"WATER"  IN  THE  BAROMETER         97 

would  not  have  sworn  to  the  Hester  Street  quotation. 
It  was  the  principle  of  the  thing.  His  judgment  of 
values  had  been  impugned. 

Values  and  Averages 

And  there  you  have  it.  The  things  in  which  Russell 
Sage  dealt  had  value.  He  had  to  know  those  values, 
and  it  was  by  knowing  them  when  they  had  ceased  to 
be  apparent  to  other  people  that  he  died  worth  more 
than  $70,000,000.  The  stock  market  barometer 
shows  present  and  prospective  values.  It  is  necessary 
in  reading  it  to  judge  whether  a  long  movement  has 
carried  the  average  prices  below  that  line  or  above  it. 
In  looking  back  over  the  various  analyses  of  the  stock 
market  as  a  guide  to  general  business,  published  in 
The  Wall  Street  Journal  since  Charles  H.  Dow  died, 
at  the  end  of  1902,  I  find  a  typical  instance  of  the 
application  of  the  averages  which  may  seem  remark- 
able to  the  reader,  although  I  regard  it  as  the  merest 
common  sense.  There  is  no  one  so  unpopular  as  the 
man  who  is  always  telling  you  that  he  "told  you  so," 
but  the  illustration  is  impersonal. 

A  Cautious  but  Correct  Forecast 

No  severer  test  could  be  taken  than  the  interpreta- 
tion of  the  averages  in  what  might  almost  be  called 
the  transition  period  between  a  bear  and  a  bull  market. 
The  bear  market  which  developed  from  September, 
1902,  saw  its  low  points  in  the  September  of  the  fol- 
lowing year,  and  it  is  weeks  or  even  months  after- 


98      THE  STOCK  MARKET  BAROMETER 

wards  before  the  change  in  the  major  swing  can  be 
definitely  asserted.  But  on  December  5,  1903,  The 
Wall  Street  Journal,  after  a  review  of  the  fundamen- 
tally sound  tendency  of  business  in  then  recent  years, 
said: 

"Considering  the  extraordinary  advance  in  wealth  of  the 
United  States  during  that  period,  considering  that  railroad 
mileage  has  not  increased  in  anything  like  the  ratio  of  increase 
in  surplus  earnings,  and  finally  considering  that  the  ratio  of 
increase  in  surplus  earnings  available  for  dividends  has  been  at 
all  times  in  excess  of  the  rise  in  market  prices  and  at  the  present 
time  shows  a  larger  percentage  on  market  price  than  at  any 
time  since  the  former  boom  started,  the  question  may  well  be 
asked  whether  the  decline  in  stocks  has  not  culminated.  There 
is  at  least  some  evidence  in  favor  of  an  affirmative  answer  to 
that  question." 

A  Bull  Market  Confirmed 

It  would  be  easy  to  say  that  such  an  opinion  could 
have  been  given  without  the  help  of  the  averages,  but 
it  was  given  with  the  price  movement  clearly  in  view 
and  at  a  time  when  there  was  an  easy  possibility  that 
the  main  bear  movement  might  be  resumed.  It  cor- 
rectly foresaw  the  bull  market,  allowing  for  the  cau- 
tion necessary  in  such  a  prediction  and,  indeed,  for 
the  fact  that  analysis  of  the  market  movement  was 
still  in  its  infancy.  The  bull  market  then  foreseen 
ran  throughout  1904,  and  can  be  said  to  have  ter- 
minated only  in  January,  1907.  But  some  nine  months 
after  this  editorial  analysis  of  the  business  situation, 
judged  by  the  averages,  was  written,  The  Wall  Street 
Journal  tackled  the  almost  equally  difficult  question  of 


"WATER"  IN  THE  BAROMETER        99 

whether  the  bull  market  then  getting  into  full  swing 
might  be  expected  to  continue.  Remember  that  the 
advance  had  been  running  with  moderate  but  increas- 
ing strength  for  twelve  months,  which  would  allow  for 
at  least  some  discounting  in  values.  On  September  17, 
1904,  The  Wall  Street  Journal  said: 

"There  is  apparently  nothing  in  sight  to  lead  one  to  believe 
that  railroad  values  are  not  on  the  whole  maintaining  their  high 
position,  and  that  as  time  goes  on  this  will  bring  a  further 
appreciation  of  prices.  Much  will  depend  on  the  coming  win- 
ter, which  will  at  all  events  bring  a  clear  indication  of  the 
general  trend  of  values.  In  the  long  run  values  make  prices. 
It  is  safe  to  say  that  if  present  values  are  maintained,  present 
prices  are  not  on  an  average  high  enough. 

"It  must  further  be  remembered  that  the  continued  increase 
in  the  production  of  gold  is  a  most  powerful  factor,  which  can- 
not fail  to  be  felt  in  the  future  as  making  for  higher  prices  of 
securities  other  than  those  of  fixed  yield." 

A  Vindication  of  the  Theory 

Note  carefully  that  last  line.  We  have  satisfied 
ourselves  that  bonds  held  for  fixed  income  decline 
when  the  cost  of  living  rises,  and  more  gold  means 
that  the  gold  dollar  will  buy  less  because  gold  is  the 
world's  accepted  standard  of  value.  But  it  stimulates 
speculation,  and  the  stock  market  had  seen  this  in 
1904,  when  this  was  written,  even  if  the  houses  with 
bonds  to  sell  thought  it  rather  "unclubby"  to  say  any- 
thing which  would  disturb  their  business.  Of  course, 
these  quotations  are  far  from  dogmatic,  because  Dow's 
Theory  was  only  beginning  to  be  understood.  We 
shall  see  as  the  years  went  on  that  the  theory  allowed 


ioo    THE  STOCK  MARKET  BAROMETER 

for  much  more  explicit  statements  of  the  market's 
condition  and  its  prospects.  It  is  sufficient  to  record 
how  soon  the  stock  market  barometer  proved  its  use- 
fulness when  Dow's  sound  method  of  reading  it  had 
been  set  forth. 


Chapter  X 

"A  LITTLE  CLOUD  OUT  OF  THE  SEA,  LIKE  A  MAN'S 
HAND" — 1906 

IN  discussions  such  as  these  it  is  necessary  to  antici- 
pate objections  and  explain  apparent  discrepancies. 
There  is  nothing  more  deceptively  fascinating  than  a 
hypothesis  which  holds  together  too  well.  Out  of 
that  sort  of  theory  much  obstinate  dogma  arises,  which 
seems  able  to  continue  its  existence  after  time  has 
proved  the  theory  unsound  or  inadequate.  We  have 
established  what  is  called  Dow's  theory  of  the  price 
movement — the  major  swing,  the  secondary  reaction 
or  rally,  and  the  daily,  fluctuation— and  out  of  it  have 
been  able  to  evolve  a  working  method  of  reading  the 
stock  market  barometer  so  constituted.  But  we  are 
to  guard  ourselves  against  being  too  cocksure,  and  to 
recognize  that  while  there  is  no  rule  without  an  excep- 
tion, any  exception  should  prove  the  rule. 

The  San  Francisco  Earthquake 

i'he  year  1906  presents  an  interesting  problem  in 
this  way.  It  is  the  problem  of  an  arrested  main  bull 
movement  or  an  accentuated  secondary  reaction,  ac- 
cording to  the  way  you  look  at  it.  It  has  been  said 
that  major  bull  markets  and  bear  markets  alike  tend 
to  overrun  themselves.  If  the  stock  market  were 
oninis.cfcnt  it  would  protect  itself  against  this  over- 

101 


102     THE  STOCK  MARKET  BAROMETER 

inflation  or  over-liquidation,  as  it  automatically  pro- 
tects itself  against  everything  which  it  can  possibly 
foresee.  (But  we  must  concede  that,  even  when  we 
A  have  allowed  for  the  further  established  fact  that  the 
stock  market  represents  the  sum  of  all  available  knowl- 
edge about  the  conditions  of  business  and  the  influences 
which  affect  business^  it  cannot  protect  itself  against 
what  it  cannot  foresee.  It  could  not  foresee  the  San 
Francisco  earthquake  of  April  18,  1906,  or  the  sub- 
sequent devastating  fire. 

Tactful  to  Call  it  a  Fire 

If  you  want  to  make  yourself  popular  with  that 
somewhat  strident  individual,  the  California  "native 
son,"  you  will  not  even  allude  to  the  San  Francisco 
earthquake.  In  California  it  is  considered  bad  man- 
ners to  do  anything  of  the  sort.  All  that  is  conceded 
there  is  the  fire.  For  our  purpose  the  earthquake 
admits  of  no  argument.  Chronic  California  boosters, 
however,  cannot  permit  a  general  impression  that 
there  might  be,  for  instance,  another  earthquake  in 
San  Francisco  as  bad  as  the  last.  A  fire,  on  the  other 
hand,  might  occur  to  any  city,  anywhere,  without  de- 
tracting from  those  natural  advantages  of  climate 
and  other  things  of  which  California  is  so  proud. 
There  is  nothing  more  charming  than  the  naivete 
of  the  Los  Angeles  native,  who  says  "It  is  a  fine  day, 
if  I  say  so  myself."  But  earthquakes  are  different. 
They  put  the  Pacific  coast  in  a  class  by  itself,  and  a 
class  not  at  all  to  the  taste  of  the  inhabitants.  As 


A  LITTLE  CLOUD  OUT  OF  THE  SEA     103 

Beau  Brummell,  the  great  English  dandy  of  the  early 
years  of  last  century,  said:  "A  hole  may  be  the  result 
of  an  accident  which  could  happen  to  any  gentleman, 
but  a  darn  is  premeditated  poverty." 

Efect  on  the  Stock  Market 

But  the  San  Francisco  earthquake  came  up  in  a 
clear  sky,  and  took  an  already  reactionary  stock  mar- 
ket by  surprise.  You  will  remember  the  clause  in  the 
Lloyds  ship  insurance  policies  which  excepts  "the  act 
of  God  and  the  King's  enemies."  This  aberration  of 
Nature  was  an  exception,  and  it  went  far  to  explain 
an  exceptional  year  in  the  record  of  the  stock-market 
barometer.  There  was  an  undoubted  bull  market 
from  September,  1903,  reaching  a  high  point  in  Janu- 
ary, 1906.  It  did  not  hold  that  point  without  reces- 
sion; and  it  may  be  said  that  as  a  general  rule  there 
is  often  no  marked  warning  line  of  distribution  at  the 
top  of  a  major  bull  swing,  especially  when  that  bull 
swing  has  overrun  itself,  as,  for  instance,  it  did  in 
1919.  The  market  in  the  spring  of  1906  was  declining, 
but  with  no  such  precipitancy  as  to  indicate  the  bull 
market  would  not  be  resumed,  or  had  even  been  much 
overbought  when  the  earthquake  occurred.  We  must 
remember  how  serious  the  losses  were.  The  convul- 
sion set  up  a  fire  in  the  ruins  of  the  immense  number 
of  collapsed  houses  or  those  shaken  to  their  founda- 
tions, and  this  fire  rapidly  assumed  the  proportions 
of  what  the  insurance  companies  call  a  conflagration. 
The  American  companies,  without  exception  of  con- 


104    THE  STOCK  MARKET  BAROMETER 

sequence,  and  the  English  companies,  paid  up 
promptly,  to  help  the  sufferers,  although  they  had  an 
excellent  fighting  case  over  the  earthquake  itself. 
We  might  have  learned  a  little  of  German  methods 
from  the  action  of  Hamburg  companies,  who  adopted 
the  opposite  policy  and  repudiated  their  liability.  It 
might  have  taught  us  something  of  the  German  meth- 
ods in  the  conduct  of  war  and  diplomacy,  of  the 
German  conceptions  of  the  spirit  of  a  contract  and  of 
sportsmanship.  At  least  after  that  time  the  fire  insur- 
ance companies  of  Hamburg  wrote  little  insurance  in 
America. 

Sound  Prediction  Under  Difficulties 

When  the  stock  market  is  taken  by  such  a  surprise 
there  is  a  violent  break  closely  akin  to  that  of  a  panic. 
The  basis  of  a  panic,  when  analyzed,  is  essentially 
surprise.  It  cannot  be  said  that  the  stock  market  of 
1906,  in  the  last  days  of  April,  got  out  of  hand.  But 
the  decline  had  been  sufficiently  serious.  The  twenty 
railroad  stocks  which  sold  at  138.36  on  January  22, 
1906,  on  May  3d  had  declined  over  eighteen  points; 
the  twelve  industrials  then  used  had  reacted  from 
one  hundred  and  three  on  January  I9th  to  86.45  on 
the  later  date.  There  seems  to  be  some  sort  of  uni- 
formity which  obtains  in  breaks  like  this.  Experience 
records  a  recovery  of  part  of  the  panic  break,  with  a 
subsequent  and  much  slower  decline  which  really  tests 
the  strength  of  the  stock  market.  In  fact,  The  Wall 
Street  Journal  of  July  6,  1906,  called  attention  to  this 


A  LITTLE  CLOUD  OUT  OF  THE  SEA     105 

fact,  in  predicting  a  general  recovery  from  the  show- 
ing of  the  averages.     It  said: 

"It  is  a  uniform  experience,  over  the  years  when  such  averages 
have  been  kept,  that  a  panic  decline  is  followed  by  a  sharp  rally 
of  from  40  per  cent  to  60  per  cent  of  the  movement,  and  then  by 
an  irregular  sag  ultimately  carrying  the  price  to  about  the  old 
low  point.  It  seems  to  need  this  to  bale  out  the  weak  holders 
who  were  helped  over  the  panic.  It  could  hardly  be  said  that 
the  break  on  the  San  Francisco  disaster  was  exactly  of  the  panic 
class,  and  the  market  in  rallying  recovered  to  131.05  in  the  case 
of  the  railroad  stocks,  which  is  only  1.61  below  the  price  at  which 
the  earthquake  decline  started.  The  rally,  however,  does  repre- 
sent about  60  per  cent  of  the  decline  since  January  22d,  and  the 
course  of  the  market  since  has  been  curiously  parallel  to  the 
movement  observed  after  a  panic  rally.  It  seems  fair  to  infer 
that  liquidation  of  very  much  the  same  kind  as  that  following  a 
panic  has  been  necessary." 

Seriousness  of  the  Disaster 

At  this  distance  of  time  we  may  easily  forget  how 
serious  the  San  Francisco  disaster  was.  The  loss  direct 
has  been  estimated  at  $600,000,000.  The  Aetna  Fire 
Insurance  Company  admitted  that  the  conflagration 
had  cost  it  the  savings  of  forty  years.  If  that  was  the 
effect  on  the  strongest  fire  insurance  company  in  the 
United  States,  and  one  of  the  strongest  in  the  world, 
how  severe  must  have  been  the  consequences  else- 
where. It  was  all  very  well  for  the  shallow,  half- 
taught  optimist  to  say  that  broken  windows  made  worn 
for  glaziers  and  manufacturers  of  glass.  But  it  cost 
you  something  to  put  in  a  new  pane,  and  the  money 
you  spent  on  it  would  have  been  spent  on  something 


io6     THE  STOCK  MARKET  BAROMETER 

else,  while,  as  Bastiat  said,  you  would  still  have  your 
window.  If  that  sort  of  reasoning  were  good,  the 
quick  road  to  prosperity  would  be  to  burn  down  all 
the  cities  in  the  United  States. 

We  see  that  the  railroad  stocks  suffered  more  than 
the  industrials,  and  we  should  remember  that  they 
were  in  a  higher  class,  both  relatively  and  positively. 
But  in  a  sudden  and  demoralizing  break  people  sell 
the  things  for  which  there  is  some  market  in  order 
to  protect  those  for  which  there  is  no  market.  As 
The  Wall  Street  Journal  put  it  at  that  time:  "The 
first  decline  in  a  panic  is  scare,  and  the  second  and 
slower  decline  is  the  demonstration  of  the  general 
shock  to  confidence;"  going  on  to  say,  in  speaking 
of  the  market  on  July  2d,  that  the  line  of  prices  was 
well  below  the  line  of  values  and  that  the  indications 
were  bullish. 

Rally  From  a  Break  in  a  Bull  Market 

This  inference  proved  correct,  and  it  has  been  the 
custom,  which  is  followed  in  these  discussions,  to  con- 
sider the  bull  market  which  began  in  September,  1903, 
as  actually  terminating  and  turning  to  the  bear  side, 
not  in  January,  1906,  but  in  December  of  the  same 
year.  At  the  time  the  bullish  inference  quoted  was 
published  the  market  was  making  a  line  which  proved, 
as  the  analyst  correctly  surmised,  to  be  one  of  accumu- 
lation. The  forecast  was  soon  verified,  and  on  August 
2 ist  The  Wall  Street  Journal  again  discussed  the 
market  from  the  point  of  view  of  the  averages.  There 


A  LITTLE  CLOUD  OUT  OF  THE  SEA     107 

was  a  greatly  active  market  at  that  time,  and  it  re- 
marked how  absurd  it  was  to  suppose  that  within  two 
hours  of  trading  on  a  Saturday  one  single  interest 
could  possibly  manipulate  one  million  six  hundred  thou- 
sand shares.  This  is  a  useful  confirmation,  coming 
out  of  the  past  of  fifteen  years  ago,  of  what  we  have 
already  seen  for  ourselves  in  demonstrating  the  rela- 
tive unimportance  of  manipulation.  In  that  discussion 
The  Wall  Street  Journal  went  on  to  say:  "We  can 
only  suppose  that  the  long  decline  between  January 
22d  and  July  2d  represented  a  somewhat  extended 
bear  swing  in  a  bull  market." 

'Average  Deductions  Uniformly  Correct 

Remember  that  this  correct  inference  was  drawn  at 
the  time,  and  not  after  the  event.  I  could  easily  go 
back  and  show  how  trustworthy  these  deductions  have 
been  over  the  twenty-odd  years  since  Dow  formulated 
his  theory.  It  would  be  absurd  to  say  that  it  was 
possible  to  call  the  exact  turn  in  the  major  swings, 
much  less  anticipate  the  unexpected.  But  these  studies 
in  the  price  movement  did  what  was  much  more  useful 
from  the  point  of  view  of  those  using  the  barometer 
from  day  to  day:  they  were  continually  right  when 
they  said  of  a  major  movement  that  it  was  still  in 
progress,  even  when  a  deceptive  secondary  movement 
had  made  superficial  observers  bearish  in  a  bull  market 
or  bullish  in  a  bear  market. 

There  is  a  story,  probably  apocryphal,  of  James  R. 
Keenc  saying  that  he  would  be  well  content  to  be 


io8     THE  STOCK  MARKET  BAROMETER 

right  51  per  cent  of  the  time.  I  don't  believe  he  ever 
said  it.  He  must  have  found  a  much  larger  percentage 
necessary.  The  balance  in  his  favor  would  not  have 
paid  operating  costs,  to  say  nothing  of  keeping  a 
racing  stable.  But  the  deductions  from  the  evidence 
of  the  price  movement  have  been  right,  as  the  printed 
record  proves,  much  the  most  of  the  time.  After 
searching  both  the  record  and  my  conscience  I  can 
find  no  instance  of  a  radical  misinterpretation  of  the 
meaning  of  the  barometer.  The  studies  based  upon 
its  use  were  uniformly  able  to  anticipate  what  the 
public  was  thinking  about  business  before  the  public 
knew  its  own  thoughts.  The  errors,  where  any  oc- 
curred, were  mainly  due  to  the  almost  impossibility  of 
forecasting  the  secondary  movement  of  the  market. 
This  is  really  much  more  difficult  than  the  interpreting 
of  the  major  swing,  just  as  it  is  easier  for  the  Weather 
Bureau  to  forecast  weather  for  a  large  area  than  it 
is  to  say  whether  it  will  rain  in  New  York  to-morrow 
morning. 

Initiation  of  a  Bear  Market 

Near  the  top  of  this  bull  market  The  Wall  Street 
Journal  uttered  a  caution.  It  pointed  out,  on  Decem- 
ber 15,  1906,  that  there  had  been  a  "line,"  especially 
in  the  twenty  active  railroad  stocks,  and  that  the 
possibility  of  a  break  through  the  lower  level  of  the 
line  should  be  considered  as  indicating  the  warning  of 
a  coming  decline.  This  forecast  did  not  commit  itself 
to  anything  more  than  a  possible  bear  swing  in  what 
had  been  for  three  years  a  primary  bull  market.  It 


A  LITTLE  CLOUD  OUT  OF  THE  SEA     109 

was  altogether  too  early  to  call  the  actual  turn.  In 
the  beginning  of  1907,  large  railroad  earnings,  materi- 
alized in  the  case  of  the  spectacular  dividend  policy 
announced  for  the  Harriman  roads  during  1906,  were 
set  off  against  high  money  rates,  which,  as  we  soon 
saw,  were  already  beginning  to  warn  the  market,  and 
business  generally,  of  that  severe  crisis  brought  about 
later  in  the  year ;  when  the  reserve  of  the  old  national 
banking  system  virtually  went  to  pieces,  call  money 
became  practically  unobtainable  at  unparalleled  rates, 
and  the  banks  resorted  to  clearing-house  certificates 
for  the  first  time  since  the  panic  of  1893. 

In  the  month  of  January,  1907,  the  active  profes- 
sional traders  were  selling  stocks.  Political  meddling 
was  beginning  to  scare  investors,  and  before  the  year 
was  out  there  was  what  amounted  to  a  strike  of 
capital.  The  decline  in  stocks  had  already  started, 
and  it  is  interesting  to  trace  the  elapsed  time  taken 
to  decide  that  a  major  bear  swing  had  replaced  the 
preceding  long-continued  bull  movement.  A  decline 
of  prices  in  January  is  always  disturbing  to  the  stock 
market  because  that  is  a  time  of  year  when,  other 
things  being  equal,  the  tendency  is  oftenest  bullish. 
It  is  a  time  for  cheap  money,  and  the  reinvestment  of 
the  profits  of  the  preceding  year.  It  is  a  time,  more- 
over, when  it  is  peculiarly  unpopular  to  talk  bearish 
in  Wall  Street.  The  prophet  of  evil,  as  I  have  already 
frequently  demonstrated,  is  totally  without  honor  in 
that  part  of  the  country. 


1 10    THE  STOCK  MARKET  BAROMETER 

Boom  Times  and  a  Falling  Barometer 

In  the  long  bull  market  there  had  been  an  unusually 
large  emission  of  new  issues,  and  it  was  then  that  the 
late  J.  Pierpont  Morgan  originated  the  phrase  about 
undigested  securities.  America  loves  a  good  phrase, 
and  that  one  caught  hold.  Industrial  earnings,  and 
especially  those  of  the  United  States  Steel  Corpora- 
tion, continued  remarkably  good.  The  railroads  were 
making  an  excellent  showing  of  both  gross  and  net. 
But  the  sharp  decline  in  the  averages  in  January  made 
our  commentator  most  cautious,  particularly  in  de- 
clining to  predict  a  rally,  much  less  assume  that  noth- 
ing more  than  a  secondary  reaction  had  been  estab- 
lished. It  was  altogether  too  soon  to  be  positive 
about  the  major  movement.  In  fact  the  severe  decline 
kept  everybody  guessing;  but  it  appears  from  the  rec- 
ords that  early  in  March  the  existence  of  a  primary 
bear  market  was  conceded  and  The  Wall  Street 
Journal,  very  like  any  other  newspaper,  was  doing 
all  it  could  to  cheer  up  the  dispirited  investor  with  a 
statement  of  the  genuinely  satisfactory  features. 

Some  Bearish  Influences^ 

But  the  market  was  looking  at  all  the  facts,  and 
the  far-reaching  consequences  of  some  of  them  were 
reflected  in  stocks.  These  bear  arguments  were  given 
on  March  15,  1907,  and  they  read  curiously  now. 
They  were : 

"i.     Excessive  prosperity. 

"2.  High  cost  of  living,  due  largely  to  the  effect  upon  prices 
of  a  great  gold  production. 


A  LITTLE  CLOUD  OUT  OF  THE  SEA     1 1 1 

"3.     Readjustment  of  values  to  the  higher  rates  of  interest. 

"4.  Speculation  in  land  absorbing  liquid  capital  that  might 
otherwise  be  available  for  commercial  enterprises. 

"5.  Roosevelt  and  his  policy  of  government  regulation  of 
the  corporations. 

"6.    Anti-railroad  agitation  in  the  various  states. 

"7.  Progress  of  socialistic  sentiment  and  demagogic  attacks 
on  wealth. 

"8.  Harriman  investigation  of  exposure  of  bad  practices  in 
high  finance. 

"9.     War  between  big  financial  interests. 

"10.     Over-production  of  securities. 

"u.     Effect  of  San  Francisco  earthquake." 

There  were  other  causes  quoted  of  only  momentary 
consequence,  in  which  possible  bear  manipulation  was 
put  last.  It  has  been  said  already  that  there  never 
was  a  bear  market  which  was  not  justified  by  the  facts 
subsequently  disclosed.  Are  we  not  entitled  to  say 
that  some  of  these  influences  became  permanent,  to 
an  extent  which  even  the  stock  market  could  not  pos- 
sibly foresee,  conceding  that  it  is,  at  least  theoretically, 
of  longer  and  larger  vision  than  any  of  us  ?  As  after 
events  proved,  the  over-regulation  of  the  railroads 
alone  was  sufficient  to  justify  investors  in  protecting 
themselves,  whatever  the  consequences  to  the  stock 
market  might  be. 

An  Abnormal  Money  Market 

In  retrospect,  the  year  1907  seems  to  me  the  most 
interesting  I  have  ever  spent  in  Wall  Street,  and  per- 
haps the  most  instructive.  It  is  full  of  lessons  and 
warnings.  I  wish  that  the  scope  of  these  discussions 


1 1 2    THE  STOCK  MARKET  BAROMETER 

permitted  a  treatment  of  it  in  greater  detail.  There  is 
no  better  story  of  it  for  the  student  than  that  of  Alex- 
ander Dana  Noyes  in  his  Forty  Years  of  American 
Finance.  He  was  financial  editor  of  the  Evening 
Post  at  that  time.  I  remember  that  at  the  beginning 
of  the  year,  when  industry  was  booming,  when  railroad 
gross  and  net  earnings  were  making  about  the  best 
showing  on  record,  when  the  stock  market  was  only 
receding  a  little  from  three  years  of  advance,  where 
prices,  moreover,  at  least  on  paper,  had  not  overtaken 
values,  he  was  struck,  as  I  was,  by  the  abnormal 
money  market.  That  is  the  time  of  year  when  money 
should  be  cheap,  and  it  was  almost  painfully  tight  in 
February.  The  stock  market  foresaw  the  meaning  of 
it  long  before  we  did,  as  the  major  bear  swing  of  1907 
showed. 

No  Bigger  Than  a  Man's  Hand 

There  was  a  broker  of  that  time,  since  dead,  whose 
face  comes  up  before  me  as  I  write.  He  talked  in 
terms  of  Wall  Street,  but  his  illustrations  were  vivid 
and  his  intelligence  was  well  above  the  average.  He 
was  an  educated  lover  of  music,  and  much  more  rever- 
ent than  he  sounded.  He  was  speaking  to  me  one 
day  about  a  performance  of  Mendelssohn's  "Elijah" 
that  he  had  once  heard,  with  the  title  role  taken  by 
the  greatest  oratorio  artist  of  all  time,  the  late  Charles 
Santley.  The  dramatic  story  had  appealed  to  my 
friend.  He  talked  of  the  priests  of  Baal  being  "corn- 
ered bears  of  the  stock  Elijah  controlled,"  and  of 
"their  frantic  efforts  to  cover  their  shorts."  He  was 


"3 

impressed  with  the  way  Elijah  had,  as  he  expressed  it, 
"joshed"  them  in  their  extremity,  suggesting  that  their 
god  was  taking  a  nap  or  was,  peradventure,  "on  a 
journey."  There  was  a  phrase  that  had  stuck  in  his 
mind  which  describes  the  condition  at  the  beginning 
of  1907:  "Behold,  there  ariseth  a  little  cloud  out  of 
the  sea,  like  a  man's  hand."  The  "great  rain"  fol- 
lowed in  the  autumn  of  the  year  1907. 

Not  only  was  the  collapse  in  business  tremendous. 
It  developed  with  a  suddenness  which  simply  took 
our  breath  away.  At  the  close  of  the  year  I  was 
traveling  on  the  Pennsylvania  railroad  with  Mr. 
Samuel  Rea,  now  the  president  and  then  the  first  vice- 
president  of  the  road.  The  Pennsylvania  carries — 
and  carried  then — a  tenth  of  the  railroad  freight  of 
the  United  States.  Mr.  Rea  said  that  at  a  time  when 
they  were  only  a  month  away  from  the  peak  of  their 
load,  apparently  able  to  count  upon  the  crop  movement 
and  the  industrial  traffic,  both  ways,  of  the  Pittsburgh 
district,  business  seemed  to  shut  up  like  a  jackknife, 
almost  overnight.  We  could  see  the  empty  cars  in 
the  stub-end  sidings  and  yards  all  along  the  system 
between  Philadelphia  and  Pittsburgh,  at  a  time  of  year 
when  railroads  are  normally  using  everything  but  the 
cripples  in  the  repair  shops. 

The  Deadly  Hand  of  Politics 

There  had  been  nothing  like  it  since  the  collapse  of 
l$93>  when  that  Congressional  monument  of  economic 
ignorance  and  sectional  folly,  the  Sherman  Silver  Pur- 


1 14    THE  STOCK  MARKET  BAROMETER 

chase  Act,  reaped  its  grisly  harvest  in  the  most  demor- 
alizing and  far-reaching  panic  we  ever  saw.  That 
seemed  to  have  been  a  lesson  to  our  lawgivers.  The 
lean  years  which  followed  that  panic,  with  the  almost 
universal  bankruptcy  of  the  railroads  and  those  who 
served  them,  finally  put  the  fear  of  the  Lord  into  the 
politicians.  For  ten  prosperous  years  previous  to  1907 
they  had  quit  kicking  the  business  dog  around.  But 
in  that  year  they  had  fully  resumed  that  highly  ex- 
pensive sport,  and  before  the  end  of  the  year  there 
was  a  strike  of  capital.  Every  man  who  had  any- 
thing to  lose  was  terrified.  Every  man  who  knew 
anything  foresaw  what  bureaucratic  meddling  and  un- 
intelligent regulation  would  do  for  the  business  of 
tl  e  country.  It  seems  to  me,  if  I  am  not  wandering 
frt  n  my  text,  that  this  is  largely  what  is  the  matter 
with  the  country  now,  war  or  no  war,  and  that  the 
stock  market  for  two  years  past  has  been  foreseeing 
some  of  the  further  consequences  of  fool  politics.  It 
may  also  be  that  in  the  impending  improvement  in 
business,  already  foreshadowed  by  the  averages  and 
the  underlying  investment  demand  shown  in  bonds, 
the  market  foresees  some  return  to  sanity,  even  if  the 
indications  in  Congress  at  present  are  anything  but 
encouraging. 


Chapter  XI 

THE  UNPUNCTURED  CYCLE 

WE  have  been  considering  in  some  necessary  de- 
tail the  record  of  the  stock  market  barometer, 
and  we  shall  have  some  further  historical  study  to 
make  in  that  interesting  and  little  understood  period 
between  the  bear  market  which  culminated  in  1910 
and  the  outbreak  of  the  World  War.  We  have  hith- 
erto paid  small  attention  to  the  tempting  "cycle 
theory"  of  human  affairs,  and  especially  of  business 
affairs.  In  an  early  discussion  I  set  forth  the  panic 
dates  for  the  eighteenth  and  nineteenth  centuries  as 
recorded  by  Jevons,  together  with  Dow's  brief  account 
of  our  panics  of  last  century.  But  it  was  essential  to 
establish  something  of  an  irregular  stock  market  cycle 
of  our  own,  not  necessarily,  and  hardly  more  than 
incidentally,  involving  a  panic — for,  indeed,  the  panic 
has  more  than  once  proved  to  be  merely  an  interrup- 
tion in  the  main  movement  of  the  barometer. 

Our  Own  Modest  Cycle 

We  can  see  that  we  have  established  some  sort  of 
irregular  rotation  through  Dow's  theory  of  the  stock 
market  price  movement — its  major  swing  up  or  down; 
its  secondary  reaction  or  rally,  as  the  case  may  be; 
and  the  daily  fluctuation  in  prices  on  the  Stock  Ex- 
change as  reflected  in  the  records  of  the  average*, 

"S 


1 1 6    THE  STOCK  MARKET  BAROMETER 

But  the  theory  of  the  longer  rhythmical  cycle  will 
not  down.  It  seems  to  be  almost  an  obsession  with 
many  of  my  readers  and  critics.  None  of  them  seems 
to  have  analyzed  his  belief  in  it  in  any  searching  way. 
The  general  impression  is  that  there  is  "something 
in"  the  idea;  that  if  it  is  not  proved  true  it  should 
be  true;  that  the  world's  panic  dates  themselves  indi- 
cate a  striking  degree  of  periodicity;  that,  given  such 
periodicity  in  the  past,  we  may  anticipate  something 
like  it  in  the  future ;  that  men  will  always  be  as  stupid 
in  the  conduct  of  their  own  business  as  they  seem  to 
have  been  when  judged  by  the  records  of  history. 

Basis  of  the  Cycle  Theory 

Probably  this  unwillingness  to  analyze  the  panic 
theory  arises  from  the  fact  that  in  the  eighteenth 
century,  according  to  Jevons,  there  were  exactly  ten 
noteworthy  crises  at  an  average  of  ten  years  apart.  I 
am  content  to  waive  the  one  Jevons  omitted — that 
of  1715,  when  the  Scots  invaded  England — because 
there  were  not  enough  spots  on  the  sun  in  that  year 
to  establish  his  daring  theory  of  the  relation  between 
the  two  phenomena.  We  may  note  that  Jevons  gave 
1793  and  1804—5  as  crisis  years,  while  it  is  of  record 
that  our  own  first  panic  of  the  nineteenth  century  was 
consequent  upon  the  British  capture  of  the  city  of 
Washington  in  1814 — an  event  which  no  cycle  could 
have  predicted,  unless  we  are  to  assume  that  the  cycle 
theory  could  have  predicted  the  late  war.  But,  count- 
ing 1814,  and  what  Dow  calls  the  "near  approach  to 


THE  UNPUNCTURED  CYCLE         117 

a  crisis"  in  1819,  there  were  ten  American  crises  in 
the  nineteenth  century. 

Let  us  see  how  the  cyclist — if  that  is  the  correct 
word — approaches  the  subject.  The  ten-year  interval 
between  the  British  crisis  of  1804-5  and  our  own  of 
1814  might  stimulate  him  at  first.  And  the  really 
serious  and  nation  wide  crises  of  1837  and  1857  would 
give  him  a  great  deal  of  confidence.  He  would  recall 
the  ten-year  intervals  of  Jevons,  and  that  we  had  up 
to  1837  recorded  four  crises  of  sorts,  in  four  decades 
of  the  new  century.  We  did  not  greatly  share  the 
panic  in  Europe  in  1847,  although  it  was  sufficiently 
serious  there  to  impress  itself  upon  American  memory. 
But  when  the  cycle  enthusiast  found  a  real  panic  in 
1857,  ne  cried  "Aha!  We  have  now  discovered  the 
secret.  There  is  a  twenty-year  cycle,  with  a  big  crisis 
at  each  end,  and  a  little  crisis  in  the  middle.  We  may 
now  confidently  set  about  humoring  the  facts  to  fit 
this  beautiful  theory." 

Misfitting  Dates 

On  that  showing  there  should  have  been  another 
first-class  panic,  with  nation  wide  consequences,  in 
1877.  But  apparently  the  machinery  slipped  a  cog,  for 
the  panic  came  in  1873.  From  the  devastating  folly 
of  overtrading  on  a  greenback  basis,  it  would  have 
come  in  1872  but  for  the  accident  that  we  had  in  that 
year  an  enormous  wheat  crop,  which  brought  splendid 
prices  in  the  world  market  because  of  the  almost  total 
crop  failure  in  Russia.  Here,  then,  was  a  contraction 


1 1 8     THE  STOCK  MARKET  BAROMETER 

of  the  interval  between  great  crises.  The  twenty-year 
theory  was  deflated  to  sixteen,  and  it  is  hard  to  derive 
much  consolation  from  the  fact  that  the  Overend- 
Gurney  failure  in  London  in  1866  had  marked  a  date 
conveniently  between  the  two  great  crises.  The  Lon- 
don panic  of  1866  was  accompanied  by  a  heavy  fall 
in  prices  in  our  Stock  Exchange.  In  April  of  that 
year  there  was  a  corner  in  Michigan  Southern  and 
rampant  speculation.  The  truthful  but  cautious  Dow 
says  that  the  relapse  from  this  "was  rather  more  than 
normal." 

But  the  three  panic  years  1873,  1884  and  1893  did 
something  to  revive  the  confidence  of  the  ten  and 
twenty-year  theorists.  The  first  and  the  last  were 
crises  of  almost  world  wide  magnitude  and  equally  far- 
reaching  consequences.  Our  cyclists  said:  "That  slip- 
up in  the  reduction  to  sixteen  years  for  the  interval 
between  crises  occurring  in  1857  and  1873  was  merely 
fortuitous,  or  at  least  we  shall  be  able  to  explain  it 
satisfactorily  when  we  have  deduced  only  a  little  more 
about  the  laws  which  govern  these  things."  And  the 
twenty-year  cyclists  prophesied,  saying:  "There  are 
twenty  years  between  1873  and  1893.  Our  barom- 
eter is  getting  into  shape.  There  will  be  a  minor  crisis 
round  about  1903  and  a  major  panic  in  1913,  or  not 
later  than  1914." 

Lost  in  Transit 

What  is  the  use  of  the  theory,  indeed,  unless  it  can 
be  made  the  basis  for  at  least  as  much  prophecy  as 
that?  But  between  1893  and  1907  we  have  an  interval 


THE  UNPUNCTURED  CYCLE         1 19 

of  fourteen  years.  Has  the  twenty-year  period  con- 
tracted, or  the  ten-year  period  expanded,  to  fourteen 
years?  Is  there  any  dependable  periodicity  about  the 
thing?  We  see  that  there  was  not  the  slightest  reason 
for  any  crisis  in  the  years  presumably  anticipated  by 
the  cycle  theorist — 1903  or  1913.  Indeed,  the  vol- 
ume of  the  world's  speculative  business  was  not  large 
enough  to  make  a  crisis  in  those  years.  It  is  reason- 
ably certain  that  a  smash  cannot  be  brought  about 
unless  an  edifice  of  speculation  has  been  constructed 
sufficiently  high  to  make  a  noise  when  it  topples  over. 
What  is  the  value  of  all  this  as  a  forecast  for  busi- 
ness? I  cannot  see  that  it  has  any.  The  theory  has 
to  make  so  many  concessions — takes  so  much  humor- 
ing, in  fact — that  it  ceases  to  have  more  than  a  value 
for  record.  We  see  that  the  sweeping  conclusions 
based  upon  the  cycle  assumption  had  to  be  changed 
again  and  again.  Does  much  that  is  really  useful 
remain?  I  am  anything  but  a  sceptic;  but  this  whole 
method  of  playing  the  cycles  looks  to  me  absurdly 
like  cheating  yourself  at  solitaire.  I  can  understand 
stringent  rules,  arbitrary  rules,  unreasonable  rules, 
in  any  game.  But  my  mind  fails  to  grasp  a  game 
where  you  change  the  rules  as  you  go  along. 

Are  They  Equal? 

And  what  becomes  of  that  imposing  premise  that 
"action  and  reaction  are  equal?"  Are  they?  There 
is  little  real  evidence  to  prove  the  assumption,  in 
recorded  human  affairs.  Of  course  the  holders  of  that 


120    THE  STOCK  MARKET  BAROMETER 

theory  may  respond,  "Well,  if  they  are  not  equal  they 
ought  to  be."  I  cannot  even  see  why  they  ought  to  be. 
Certainly,  holding  a  Christian  faith  in  the  perfectibil- 
ity of  human  nature,  I  do  not  see  why  crises  should 
not  be  eliminated  altogether.  It  is  easy  to  see  how 
the  periods  between  them  at  least  seem  to  have  grown 
longer.  The  interval  between  1893  and  1907  was 
fourteen  years,  and  1920  was  no  panic  year. 

Unless  we  are  to  force  the  construction  of  what 
constitutes  a  panic  until  we  actually  distort  it,  we  can 
hardly  regard  the  deflation  liquidation  of  1920  as  a 
typical  crisis.  It  could  not  begin  to  compare  with  the 
damaging  effects  of  1893,  I873>  1857,  or  1837.  Ifc  had 
none  of  the  earmarks  of  a  panic  year.  I  dare  say  I 
shall  believe,  in  five  years'  time,  that  the  drastic  con- 
traction and  deflation  were  about  the  best  thing  that 
could  have  happened  to  us.  They  should  certainly 
discount  all  sorts  of  trouble  in  the  future. 

A  Business  Pathology  Needed 

There  must  be  some  sort  of  scientific  pathology  of 
business  affairs,  or  perhaps  it  might  be  better  to  call 
it  morbid  psychology.  I  have  suggested  in  another 
chapter  how  utterly  inadequate  the  records  of  history 
are  in  the  vital  matter  of  commerce  and  all  that  con- 
tributes to  it.  But  we  are  beginning  to1  acquire  a 
scientific  knowledge  of  the  symptoms  of  the  diseases 
which  afflict  it.  In  this  respect  we  have  probably  made 
more  advance  in  the  past  quarter  of  a  century  than  in 
all  the  years  since  Carthage  sold  the  purple  weaves 


THE  UNPUNCTURED  CYCLE         121 

of  Tyre  to  Rome.  We  may  well  hope  that  we  are  de- 
veloping a  scientific  method  of  diagnosing  the  symptoms 
of  business  disease.  There  was  no  such  method  in  1 893, 
bcause  there  were  no  such  records  as  we  have  today. 

But  why  need  we  assume  that  once  every  ten  years 
or  twenty  years,  or  any  other  period,  the  most  intelli- 
gent part  of  mankind  loses  its  head  and  forgets  all 
the  lessons  of  the  past?  One  thing  is  certain  about  a 
panic.  It  could  never  occur  if  it  were  foreseen.  Are 
we  not  working  toward  a  sum  of  knowledge  and  an 
accuracy  of  analysis  which  will,  in  a  sufficiently  safe 
measure,  foresee  all  but  the  non-insurable  risks — "the 
act  of  God  and  the  King's  enemies?" 

The  Federal  Reserve  Safeguard 

I  can  see  a  great  deal  too  much  politics,  and  many 
defects,  in  the  Federal  Reserve  banking  system.  But 
under  that  system  it  is  hard  to  imagine  a  set  of  con- 
ditions which  would  force  the  country  to  resort  once 
more  to  clearing-house  certificates,  as  it  did  in  1907 
and  1893.  It  would  pass  the  wit  of  man  to  devise  a 
perfect  banking  system ;  and  what  would  seem  perfect 
to  one  would  appear  utterly  inadequate  to  another. 
But  the  progress  from  the  old  national  banking  system 
to  the  Federal  Reserve  system  represents  the  most 
tremendous  stride  in  business  practice  which  the  coun- 
try has  ever  seen.  Is  not  the  Reserve  system  itself  an 
entirely  new  factor  for  the  cycle  theorist  to  consider? 

It  must  not  be  assumed  for  a  moment  that  possible 
crises  in  the  future  may  be  dismissed  from  considera- 


122    THE  STOCK  MARKET  BAROMETER 

tion.  On  the  contrary,  they  are  certain  to  come.  But 
may  we  not  hope  that,  with  fuller  knowledge,  they 
will  be  at  least  in  part  anticipated  and,  in  their  most 
dangerous  effects,  radically  mitigated? 

Teaching  the  Teacher 

If  these  studies  have  shown  the  man  who  takes  an 
intelligent,  even  if  not  a  financial  interest  in  Wall 
Street,  that  knowledge  will  protect  him  there  as  it 
will  anywhere  else,  the  educational  design  has  been 
largely  accomplished.  Certainly  one  of  the  desirable 
educative  services  of  this  series  has  been  to  show  the 
writer  how  much  there  was  about  the  stock  market 
movement  which  he  had  never  before  formulated  to 
himself  in  any  useful  fashion.  The  way  to  get  at  the 
essence  of  such  a  proposition  is  pragmatic — to  live 
with  it  from  day  to  day.  The  stock  market  problem, 
considered  in  the  light  of  Dow's  Theory,  is  essentially 
simple.  It  can  be  set  forth  in  a  thoroughly  useful  way, 
provided  only  that  the  teacher  is  neither  a  crank  nor 
a  quack,  a  gambler  or  a  crook.  Harvard  University 
is  performing  a  greatly  needed  service  in  putting  out 
tabulations  and  index  charts  on  general  business  con- 
ditions which  are  above  suspicion.  The  compilers  have 
not  tied  themselves  down  to  dangerous  assumptions. 
They  are  not  lashed  to  an  assumed  "medial  line"  of 
national  wealth  with  a  constant  upward  tendency  at 
the  same  rate  of  speed  in  good  times  or  bad,  which 
loses  its  certainty  in  face  of  the  grim  facts  of  war, 
and  hysterically  changes  its  course. 


THE  UNPUNCTURED  CYCLE         123 
Does  the  Physical  Law  Apply? 

Such  a  system  as  that  of  Harvard  University  is  not 
committed  to  the  proposition  that  in  human  affairs 
action  and  reaction  are  equal.  That  is  a  fine-sounding 
phrase,  but  it  should  require  incalculably  more  evi- 
dence than  has  yet  been  adduced  to  persuade  us  to 
adapt  a  law  of  physics  to  something  so  unstable  and 
elusive  as  human  nature  itself.  Among  the  many 
things  which  our  stock  market  averages  prove,  one 
stands  out  clearly.  It  is  that  so  far  as  the  price  move- 
ment is  concerned  action  and  reaction  are  not  equal. 
We  do  not  have  an  instance  of  a  bull  market  offset  in 
the  extent  of  its  advance  by  an  exactly  corresponding 
decline  in  a  bear  market.  And  if  this  is  true,  as  it 
demonstrably  is,  about  the  extent  of  the  price  move- 
ment in  any  given  major  swing,  it  is  still  more  true 
about  the  time  consumed.  We  have  seen  that  bull 
markets  are,  as  a  rule,  of  materially  longer  duration 
than  bear  markets.  There  is  no  automatically  balan- 
cing equation  there.  I  do  not  believe  there  is  such  an 
equation  in  human  affairs  anywhere.  Certainly  there 
is  none  recorded  in  history.  I  am  compelled  to  rely 
upon  others  for  tabular  figure  compilations  of  all 
kinds,  and  do  not  profess  to  have  used  my  modest 
razor  for  the  cutting  of  any  of  these  tables  of  stone. 
But  in  all  the  study  of  figures  prepared  for  use  in  my 
profession,  I  have  been  unable  to  find  a  balance  of 
action  and  reaction. 


124    THE  STOCK  MARKET  BAROMETER 

Extent  and  Duration  Incalculable 

Certainly  the  stock  market  barometer  shows  noth- 
ing of  the  kind.  There  is  no  approximation  to  the 
regularity  of  the  pendulum,  either  in  the  arc  of  the 
swing  or  its  velocity.  We  see  a  bear  market  declining 
forty  points,  a  bull  market  advancing  fifty  points  over 
more  than  twice  the  period,  a  bear  market  declining 
nearly  sixty  points,  a  bull  market  recovering  forty- 
live  points,  a  bear  market  declining  less  than  thirty 
points,  a  major  swing  upward  of  not  much  more  than 
twenty  points,  a  bull  market  advancing  nearly  sixty 
points  in  the  industrials  with  a  simultaneous  advance 
of  less  than  thirty  in  the  railroads,  and  a  different 
period  for  each  successive  swing.  This,  in  approxi- 
mate figures,  is  the  record  for  a  quarter  of  a  century. 
There  is,  obviously,  a  rough  periodicity  about  such 
movements.  But  if  we  begin  to  twist  them  into  some 
mathematically  calculable,  regularly  recurring  "cycle," 
the  next  main  movement,  up  or  down,  will  leave  us  all 
adrift,  with  nothing  to  hold  on  to  but  an  empty  theory 
and  an  empty  purse. 

Sham  Mysteries 

I  do  not  want  to  dogmatize  about  this,  although  I 
am  trying  to  make  what  is  essentially  a  scientifically 
treated  subject  popularly  interesting,  if,  indeed,  ser- 
mons are  ever  popular.  One  trouble  of  all  teaching, 
and  a  moral  danger  to  every  teacher,  is  that  the 
authority  necessarily  accorded  to  the  instructor  leads 
him  to  make  something  of  a  mystery  of  his  trade.  His 


THE  UNPUNCTURED  CYCLE         125 

unconscious  desire  to  eliminate  embarrassing  competi- 
tion leads  him  to  exaggeration  of  the  difficulties  to  be 
encountered  in  acquiring  a  sound  knowledge  of  the 
subject.  In  a  brief  time,  as  human  affairs  run,  there 
will  be  a  sort  of  cult  amplifying  and  complicating  an 
otherwise  simple  thesis.  Every  religion  breeds  a 
priesthood,  where  sacerdotal  succession  becomes  more 
important,  or  at  least  much  more  jealously  defended, 
than  mere  salvation.  Both  in  the  English  common 
law  and  the  canon  law  handicrafts  were  sometimes 
referred  to  as  mysteries.  The  plumber  who  comes 
into  your  house  likes  you  to  believe  that  his  elaborate 
preparations,  and  the  general  mess  he  makes,  are  evi- 
dence of  the  difficulty  of  the  task  he  has  accomplished 
— a  difficulty  you  as  a  layman  are  entirely  unable  to 
measure — and  a  sufficient  pretext  for  the  extortionate 
bill  he  renders. 

Tipsters  and  Insiders 

I  have  known  some  likable  people  connected  with 
what  are  frankly  stock-tipping  agencies.  There  is  a 
market  for  what  they  supply,  and  they  are  necessarily 
excellent  judges  of  human  nature.  They  are  never 
bearish  on  the  stock  market.  They  are  often  success- 
ful and  prosperous  in  a  bull  market,  and  I  suppose  that 
the  savings  of  the  fat  years  support  them  in  the  lean 
ones.  They  tell  the  unscientific  speculator  what  he 
wants  to  know,  but  not  what  he  needs  to  know.  Some- 
times the  guessing  is  good,  and  always  there  is  the  sug- 
gestion that  there  is  a  mystery  about  reading  the  stock 


126    THE  STOCK  MARKET  BAROMETER 

market  movement.  If  this  is  true  of  what  they  teach 
on  the  general  market,  it  is  still  more  true  about  indi- 
vidual stocks.  With  them  "insiders"  are  always  buy- 
ing. In  my  experience  I  have  known  many  insiders, 
and  for  every  purpose  of  the  small  speculator  they 
were  far  oftener  wrong  than  right. 

As  a  matter  of  fact  these  so-called  insiders,  the  real 
men  who  conduct  the  real  business  of  a  corporation, 
are  too  busy  to  spend  their  time  over  the  stock  ticker. 
They  are  far  too  limited,  too  restricted  to  their  par- 
ticular trade,  to  be  good  judges  of  the  turn  of  the 
market.  They  are  normally  bullish  on  their  own  prop- 
erty, in  the  respect  that  they  believe  it  to  be  a  growing 
concern  with  great  possibilities.  But  of  the  fluctua- 
tions of  business  which  will  affect  their  stock,  together 
with  the  rest  in  the  same  group  or  all  the  other  rail- 
road and  industrial  stocks  in  the  same  market,  their 
view  is  singularly  limited.  It  is  not  mere  cynicism  but 
truth  to  say  that  sufficient  inside  information  can  ruin 
anybody  in  Wall  Street. 

That  is  not  only  true,  but  it  is  an  excellent  thing  that 
it  is  true.  Of  course  the  executive  officers  of  large 
corporations  should  have  a  sound  general  knowledge 
of  conditions  outside  their  own  sphere.  They  should 
be  well  instructed.  They  might  read  this  book  with 
advantage,  if  it  only  taught  them  to  take  a  more  objec- 
tive view.  But  even  with  the  basis  of  a  general  educa- 
tion, such  as  is  required  in  a  good  university  of  the 
man  who  intends  afterwards  to  specialize  in  law  or 
surgery,  their  very  occupation  unduly  affects  their 
sense  of  proportion.  , 


THE  UNPUNCTURED  CYCLE         127 

Our  Trustworthy  Guide 

This  is  why  the  stock  market  barometer  is  so  valu- 
able. It  makes  little  of  cycles  or  systems,  interesting 
and  even  well-grounded  inferences  or  common  fads. 
It  uses  them  all  so  far  as  they  are  useful,  together 
with  every  other  scrap  of  information  it  is  possible 
to  collect.  The  market  movement  reflects  all  the  real 
knowledge  available,  and  every  day's  trading  sifts  the 
wheat  from  the  chaff.  If  the  resultant  showing  of 
grain  is  poor,  the  market  reflects  the  estimate  of  its 
value  in  lower  prices.  If  the  winnowing  is  good,  prices 
advance  long  before  the  most  industrious  and  up-to- 
date  student  of  general  business  conditions  can  bushel 
up  the  residue  and  set  it  forth  in  his  pictorial  chart. 
Few  of  us  can  be  Keplers  or  Newtons.  But  it  is  pos- 
sible to  formulate  working  rules  which  will  help  and 
protect  any  man  in  that  forecast  of  the  future  which 
he  must  necessarily  make  every  day  of  his  life.  This 
is  what  the  stock  market  barometer  does.  It  makes 
no  false  claims.  It  admits  highly  human  and  obvious 
limitations.  But  such  as  it  is,  it  "an  honestly  claim 
that  it  has  a  quality  of  forecast  uhich  no  other  busi- 
ness record  yet  devised  has  even  closely  approached. 


Chapter  XII 

FORECASTING  A  BULL  MARKET — 1908-1909 

CONTINUING  the  important  and,  indeed,  vital 
subject  of  the  prediction  value  of  the  stock  mar- 
ket barometer,  if  we  are  to  prove  the  validity  of  Dow's 
theory  of  the  price  movement,  the  analyses  of  the 
stock  market  averages  published  at  irregular  periods  in 
The  Wall  Street  Journal  in  1907-8  may  be  here  sub- 
mitted. These  are  of  record,  and  there  is  a  personal 
reason  why  they  should  have  impressed  themselves 
upon  my  memory.  At  the  end  of  the  year  1907  the 
late  Sereno  S.  Pratt,  a  man  of  sound  economic  knowl- 
edge, sterling  character  and  exceptional  ability  as  a 
newspaper  man,  relinquished  the  editorial  chair  of 
The  Wall  Street  Journal  for  the  dignified  and  less 
exacting  post  of  secretary  to  the  New  York  Chamber 
of  Commerce. 

Impersonal  Editorials 

Apart  from  the  fact  that  they  are  not  signed,  news- 
paper editorials  have  far  less  of  any  personal  quality 
than  the  public  supposes  or  politicians  assume.  The 
editor  is,  of  course,  personally  responsible  for  them, 
not  only  to  the  proprietors  of  the  paper  but  civilly  and 
criminally  under  the  law.  His  own  editorials  arc 
checked,  when  necessary,  by  the  experts  of  the  paper 
who  "cover"  particular  subjects,  and  what  they  write 

128 


A  BULL  MARKET— 1908-1909          129 

editorially  is  in  turn  subject  to  the  editor's  revision. 
Several  competent  persons  have  seen  and  criticized  an 
editorial  before  it  appears,  in  any  well-conducted 
paper.  I  succeeded  Pratt  at  the  beginning  of  1908, 
but  it  is  impossible  for  me  to  say,  even  if  the  matter 
were  not  in  some  degree  confidential,  to  what  extent 
the  editorial  discussions  of  the  averages  were  a  matter 
of  individual  thought,  although  the  methods  of  an 
editor  unconsciously  impress  themselves  upon  his  staff. 
At  any  rate  Pratt  and  I  were  of  one  mind  in  the 
method  of  reading  the  averages  which  the  paper  had 
inherited  from  Charles  H.  Dow,  its  founder. 

Detecting  the  End  of  a  Bear  Swing 

It  will  be  remembered,  from  the  preceding  article, 
that  there  was  a  short  but  severe  major  bear  swing 
lasting  throughout  1907,  really  culminating  on  No- 
vember 2 1  st  of  that  year.  In  the  last  week  of  Novem- 
ber the  industrial  stocks  rallied  sharply,  as  they  might 
equally  have  done  in  a  secondary  upward  swing  in  a 
bear  market;  and  the  most  difficult  of  all  barometer 
problems,  that  of  calling  the  turn  of  the  market,  pre- 
sented itself.  On  December  5th  The  Wall  Street 
Journal  said: 

"Since  November  2ist,  when  the  average  price  of  twenty  rail- 
road stocks  touched  81.41,  its  lowest  point,  there  has  been  an 
advance  of  7.70  to  89.11,  which  was  the  record  at  the  close  of 
yesterday's  strong  market.  During  these  ten  days  there  have 
been  only  two  days  of  decline.  This  is  a  very  substantial  rally, 
and  perhaps  it  is  too  rapid,  all  things  considered,  although  it  still 


130    THE  STOCK  MARKET  BAROMETER 

leaves  prices  on  a  basis  which  would  seem  to  discount  in  large 
part  the  reasonable  trade  contraction  of  the  future." 

On  December  23d  there  was  an  incidental  reference 
to  the  averages  in  the  discussion  of  the  general  devel- 
opments of  the  week.  The  writer  seems  to  have  felt 
rather  than  asserted  the  change,  which  it  would  have 
been  rash  to  predict,  and  said: 

"It  will  be  noticed  that  there  has  been  quite  a  typical  move- 
ment of  the  average  price  of  railroad  stocks.  It  declined  twenty- 
six  points  from  July  2Oth  to  November  2ist.  It  rallied  nine 
points  in  the  following  fortnight,  reacted  four  points  in  the  next 
ten  days,  and  has  rallied  two  points  in  the  past  week.  This  is 
really  the  shortened  swing  of  the  pendulum,  as  it  approaches 
equilibrium." 

A  Self -Correcting  Barometer 

Before  we  go  further  it  is  necessary  to  say  some- 
thing about  the  secondary  movement  of  which  this 
paragraph  gives  a  simple,  concrete  instance,  sufficient 
for  our  present  purposes.  It  will  be  observed  that  the 
reaction  following  the  rally  from  the  low  points  of 
the  bear  market  was  checked  before  it  reached  the  old 
low,  and  for  purposes  of  record  it  may  be  said  that 
the  movement  of  the  twelve  industrial  stocks  then  used 
in  the  average  was  roughly  parallel  and  confirmatory. 
Perhaps  the  last  sentence  "in  the  paragraph  quoted  is 
the  most  illuminating  if  it  were  intended  to  develop 
in  this  article  the  meaning  and  function  of  the  sec- 
ondary swing.  It  may  be  said  that  in  that  way  our 
barometer  tends  to  adjust  itself.  At  the  turn  of  a 
bear  market  there  is  a  chaos  of  knowledge  of  all  kinds, 


A  BULL  MARKET— 1908-1909          131 

and  an  almost  inextricable  confusion  of  opinion,  which 
is  gradually  resolving  itself  into  order.  It  follows 
that  speculators  and  investors  tend  to  anticipate  the 
market  movement  and  often  look  too  far  ahead. 

Right  Too  Soon 

It  would  be  possible  to  offer  endless  instances  of 
people  who  lost  money  in  Wall  Street  because  they 
were  right  too  soon.  One  illuminating  instance  occurs 
to  me  as  far  back  as  the  bull  market  which  developed 
in  the  summer  preceding  the  re-election  of  McKinley 
in  1900.  One  of  the  most  conspicuous  traders  on  the 
floor  then  was  a  partner  in  an  active  arbitrage  house 
which  has  long  since  gone  out  of  existence.  For  the 
sake  of  the  layman  it  may  be  explained  that  an 
arbitrage  house  is  (or  was)  one  of  those  which  did 
business  by  cable  exchange  with  the  London  market, 
taking  advantage  of  the  fluctuating  differences  between 
the  prices  in  the  forenoon  on  the  New  York  Stock 
Exchange  and  those  in  what  at  that  time  of  our  day 
would  be  the  afternoon  in  the  London  Exchange.  But 
in  those  dull  summer  days  there  was  not  enough  busi- 
ness for  the  arbitrage  houses,  or  anybody  else.  The 
total  recorded  transactions,  which  have  in  their  time 
exceeded  three  million  shares  a  day,  dwindled  down 
to  considerably  less  than  a  hundred  thousand. 

Louis  Wormser,  however,  was  as  active  as  a  trader 
could  be  on  the  floor  in  such  circumstances.  He  was 
bullish  all  through  the  summer.  Other  traders  com- 
plained that  he  went  about  spoiling  what  little  market 


132    THE  STOCK  MARKET  BAROMETER 

there  was  in  any  stock  which  was  momentarily  active. 
It  is  fair  to  say  that  he  was  entirely  within  his  rights 
as  a  floor  trader  and  a  member  of  the  Exchange.  The 
market  did  not  begin  to  gain  strength  or  volume  until 
the  last  few  weeks  of  the  presidential  campaign. 
Wormser  was  then  on  the  right  side  and  followed  the 
market  up.  I  suspect  he  even  fancied  he  was  leading 
it.  For  three  days  after  the  election  stocks  were  very 
strong.  They  were  so  strong  that  he  was  convinced 
the  bull  movement  had  sufficiently  discounted  the  re- 
election of  McKinley.  He  turned  bearish,  and  prob- 
ably lost  in  a  few  days  all  he  may  have  made  on  the 
bull  side  in  the  preceding  five  months.  That  bull  mar- 
ket, as  we  have  shown,  did  not  culminate  until  Sep- 
tember, 1902,  in  spite  of  the  serious  interruption  of 
the  Northern  Pacific  corner  and  panic.  This  is  an 
excellent  example  of  a  speculator  who  saw  only  one 
of  the  many  factors  where  the  market  saw  all  of 
them,  and  who  was  not  content  to  trust  the  barometer. 
It  may,  indeed,  have  been  that  Wormser's  prominence 
in  a  restricted  market,  a  relatively  large  frog  in  a 
small  puddle,  had  given  him  the  impression,  by  no 
means  singular,  that  he  alone  constituted  the  market, 
as  he  sometimes  had  in  the  dull  days  preceding  the  rise. 

A  Courageous  Prediction 

Returning  to  the  bull  market  of  1908  and  1909, 
which  The  Wall  Street  Journal  was  evidently  begin- 
ning to  foresee,  on  December  25,  1907,  that  news- 
paper said,  "We  have  seen  the  low  price  for  the 


A  BULL  MARKET— 1908-1909          133 

year  in  all  probability."  On  January  10,  1908,  when 
the  country  was  still  quivering  from  the  shock  of  the 
developments  of  1907,  when  the  clearing-house  certifi- 
cates were  a  vivid  reality,  The  Wall  Street  Journal, 
manifestly  judging  by  the  barometer  alone,  was  able 
to  record  a  significant  rally.  Speaking  of  this  pre- 
liminary movement,  it  says  that  it  gives  "the  impres- 
sion that  it  is  one  of  those  sharp  fluctuations  which 
follow  an  extreme  low  point  and  precede,  at  greater 
or  less  distance,  a  permanent  turn  in  the  tide."  That 
seems  fairly  courageous  and  clear  as  a  prediction,  and 
one  of  exactly  the  conservative  kind  business  men  were 
being  led  to  expect  from  the  general  consideration  of 
the  stock  market  barometer.  Let  us  keep  in  mind 
that  Dow's  theory  is  not  a  system  devised  for  beating 
the  speculative  game,  an  infallible  method  of  playing 
the  market.  The  averages,  indeed,  must  be  read  with 
a  single  heart.  They  become  deceptive  if  and  when 
the  wish  is  father  to  the  thought.  We  have  all  heard 
that  when  the  neophyte  meddles  with  the  magician's 
wand  he  is  apt  to  raise  the  devil. 

Reviewing  the  Collapse 

Prediction  was  anything  but  a  comfortable  task  in 
the  beginning  of  a  bull  market  which  nobody  at  that 
time  would  concede,  much  less  forecast  with  any  degree 
of  certainty.  In  an  earlier  chapter  of  this  series  great 
stress  was  laid  on  the  suddenness  with  which  business 
collapsed  in  1907.  The  Wall  Street  Journal  recalls 
the  conditions,  and  the  startling  change,  in  its  editorial 
of  January  24,  1908: 


134    THE  STOCK  MARKET  BAROMETER 

"Consider,  for  instance,  the  rapidity  with  which  the  pendu- 
lum of  business  has  swung  in  this  country  from  extreme  pros- 
perity to  great  prostration.  Almost  in  a  single  night  the 
situation  changed  from  one  extreme  to  another.  Even  after 
the  panic  had  swept  through  Wall  Street  with  terrific  force  a 
high  official  of  a  leading  railroad  commented  upon  the  fact  that 
the  traffic  of  his  line  had  the  day  before  touched  high-water 
mark.  Three  weeks  later  the  same  official  reported  that  the 
business  of  the  line  had  fallen  off  abruptly.  Anecdotes  of  this 
kind  could  be  multiplied  indefinitely. 

"It  is  only  three  months  since  the  panic  started  in  Wall 
Street,  and  yet  that  time  has  been  sufficient  to  produce  what 
amounts  to  a  revolution  in  the  economic  conditions  of  the 
country.  Three  months  ago  there  were  not  cars  enough  to 
move  the  freight.  Now  there  are  several  tens  of  thousands  of 
empty  freight  cars  on  the  sidings  and  in  the  terminals.  Three 
months  ago  the  iron  and  steel  trade  was  at  the  very  height  of 
its  activity.  It  took  only  five  or  six  weeks  to  cut  off  the  demand 
and  to  close  mills.  If  a  chart  were  drawn  to  describe  the 
reduction  in  iron  and  steel  production  in  the  past  ten  weeks, 
it  would  make  almost  a  perpendicular  line,  so  sudden  and 
extreme  has  been  the  contraction." 

A  Bull  Market  Recognized 

These  extracts  could  be  supplemented  by  and  con- 
trasted with  the  uniformly  bullish  inferences  drawn 
from  the  stock  market  barometer  during  the  winter 
and  spring  of  1908,  when  the  business  of  the  country 
was,  apparently,  in  the  deepest  stage  of  depression. 
The  depression  was  recognized;  but  the  fact  that  the 
stock  market  was  acting  not  upon  the  things  of  the 
moment  but  upon  all  the  facts,  as  far  ahead  as  it  could 
see  them,  was  never  allowed  to  become  obscure.  It 
will  be  seen  that  The  Wall  Street  Journal  set  forth 


A  BULL  MARKET— 1908-1909          135 

the  known  facts  in  the  paragraphs  quoted  above.  A 
well-known  chart  showed  its  lowest  point  of  depres- 
sion at  that  time  and  did  not  cross  its  medial  line,  to 
begin  its  ensuing  area  of  expansion,  until  the  following 
November.  But  the  stock  market  anticipated  that 
record  by  a  clear  twelve  months,  and  the  faithful 
barometer  predicted  the  recovery  when  there  was  ap- 
parently not  a  patch  of  clear  sky  on  the  horizon. 

Reprobating  the  "Frivolous"  Recovery 

Looking  back  on  those  days  of  early  responsibility, 
it  is  matter  of  thankfulness  to  me  to  have  had  Dow's 
sound  theory  to  back  me  in  the  face  of  unbelievably 
virulent  criticism.  In  the  mind  of  the  demagogue 
Wall  Street  can  never  be  forgiven  for  being  right  when 
he  is  wrong.  The  country  at  that  time  was  full  of  all 
kinds  of  agitation  for  the  curbing,  controlling,  regu- 
lating and  general  bedeviling  of  business.  Discontent 
was  general,  and  it  was  a  winter  of  unemployment. 
Some  of  the  letters  received,  in  which  this  bullish  atti- 
tude of  the  stock  market  was  denounced  in  the  most 
unmeasured  terms,  would  sound  funny  now,  although 
they  were  anything  but  funny  then.  We  seemed  to  be 
in  the  position  of  the  "coon"  at  the  country  fair  who 
puts  his  head  through  a  hole  in  a  sheet  as  a  target 
for  those  willing  to  pay  their  nickels  for  the  privilege 
of  a  shot  at  him.  The  lightest  accusation  was  that 
Wall  Street  was  "fiddling  while  Rome  was  burning." 
The  general  charge  took  the  form  that  guilty  manipu- 
lation by  gamblers  was  in  progress. 


i36    THE  STOCK  MARKET  BAROMETER 

If  you  will  refer  back  to  the  twenty-five-year  chart 
published  with  an  earlier  discussion  you  will  note  that 
the  recorded  sales  at  that  time  were  the  lowest  since 
1904,  indicating  a  market  so  narrow  that  manipulation 
would  have  been  wasted  even  if  it  had  been  possible. 
But  that  charge  is  always  made  in  a  bear  market  and 
in  the  transition  period  between  a  major  decline  and 
its  succeeding  upward  movement.  If  I  had  not  already 
advanced  so  many  arguments  to  prove  what  an  in- 
considerable factor  manipulation  really  is,  the  volume 
of  sales  itself  would  be  sufficient  to  make  my  point. 
But  these  sturdy  protestants  thought  otherwise,  and 
continued  to  fill  my  wastebasket  with  revilings  for 
many  months  to  come.  For  a  time  at  least,  a  bull 
market  was  positively  unpopular. 

Relevance  of  the  Volume  of  Trading 

It  is  worth  while  to  note  here  that  the  volume  of 
trading  is  always  larger  in  a  bull  market  than  in  a 
bear  market.  It  expands  as  prices  go  up  and  contracts 
as  they  decline.  A  moment's  thought  will  reveal  the 
reason.  When  the  market  has  been  under  long  depres- 
sion many  people  have  lost  money,  actually  and  on 
paper,  and  the  fund  for  speculation  or  speculative 
investment  is  correspondingly  contracted.  On  the  ad- 
vance, however,  many  people  are  making  money,  actu- 
ally and  on  paper,  and  the  wellnigh  universal  experi- 
ence has  been  that  in  the  last  stages  of  a  bull  market 
they  trade  in  stocks  beyond  their  real  resources.  This 
is  uniformly  true  of  major  bull  swings,  but  is  subject 


A  BULL  MARKET— 1908-1909          137 

to  great  modification  in  the  secondary  movements.  A 
sharp  reaction  in  a  bull  market  will  often  stimulate 
the  volume  of  business.  There  is  a  picturesque  example 
of  this  in  the  most  spectacular  reaction  of  the  kind. 
The  average  monthly  sales  in  May,  1901,  have  not 
been  closely  approached  since.  They  were  more  than 
one  million  eight  hundred  thousand  shares  a  day,  in- 
cluding Saturdays,  when  there  is  only  two  hours  of 
trading,  and  it  was  on  the  9th  of  May  that  the  North- 
ern Pacific  panic  took  place.  There  will  be  an  oppor- 
tunity to  take  up  the  secondary  swing  in  some  detail 
in  a  future  discussion,  and  it  is  not  necessary  for  our 
purpose  to  expand  upon  the  subject  now. 

An  Unbiased  Mind 

Not  to  be  tedious,  but  to  counter  the  charge  of 
saying  "I  told  you  so,"  on  ex  post  facto  evidence,  it 
has  been  necessary  to  offer  these  examples  of  the  prac- 
tical use  of  the  stock  market  barometer.  There  is, 
indeed,  little  in  these  predictions  to  excite  boasting. 
Any  intelligent  student  of  the  averages  who  has  once 
grasped  the  principle  of  the  stock  market  barometer 
can  draw  such  deductions  for  himself,  provided  he 
brings  to  the  task  a  really  unbiased  mind.  An  interest 
in  the  stock  market  would  be  almost  certain  to  weaken 
his  judgment.  It  is  only  human  to  foresee  what  you 
hope  and,  indeed,  what  you  expected  when  you  bought 
stocks  for  the  rise  or  sold  them  short.  But  the  analyst 
of  the  price  movement,  writing  for  the  guidance  of 
others,  must  be  absolutely  disinterested.  There  are  all 


i38     THE  STOCK  MARKET  BAROMETER 

sorts  of  traps  to  catch  him  if  he  is  not,  particularly  if 
he  has  previously  committed  himself  to  inferences  not 
clearly  justified  by  the  premises.  Sheer  pride  of 
opinion  has  ruined  more  speculators  in  the  stock  mar- 
ket than  all  other  causes  put  together. 

An  Unfortunate  Guess 

One  of  the  shortest  ways  of  going  wrong  is  to  accept 
an  indication  by  one  average  which  has  not  been 
clearly  confirmed  by  the  other.  On  May  10,  1921, 
the  New  York  American  ventured  into  prophecy  on 
its  financial  page.  To  reinforce  its  prediction  its  fore- 
caster published  a  reproduction  of  the  Dow-Jones 
chart.  As  the  chart  and  the  accompanying  figures 
were  taken  without  acknowledgment,  altruists  who 
believe  that  ill-gotten  gains  do  not  prosper  will  hear 
with  satisfaction  that  the  author  of  the  Hearst  Ameri- 
can article  did  not  even  understand  the  meaning  of 
what  he  had  appropriated.  He  announced  a  bull 
movement  for  the  industrial  stocks,  even  prescribing 
its  limits,  a  degree  of  prophecy  hitherto  unsuspected 
in  the  barometer;  while  the  railroad  stocks,  as  he 
expressed  it,  "marked  time."  It  was  a  most  unfortu- 
nate guess,  for  the  industrials  declined  a  further  thir- 
teen points,  making  their  new  low  in  June;  while  the 
railroads,  so  far  from  marking  time,  also  showed  a 
substantial  reaction. 

Averages  Must  Confirm  Each  Other 

This  was  a  case  where  the  observer  was  misled  by 
a  bullish  indication  given  in  the  industrial  average 


A  BULL  MARKET— 1908-1909          139 

which  was  not  confirmed  by  the  railroads.  The  former 
had  been  making  what  we  have  learned  to  call  a  line, 
and  after  a  secondary  rally  in  a  bear  market  showed 
some  strength,  at  a  figure  above  the  line  and  calculated 
to  suggest  accumulation  if  there  had  been  any  evidence 
of  the  same  thing  in  the  railroad  stocks.  But  there 
was  nothing  of  the  kind,  and  it  is  to  be  hoped  that  the 
readers  of  the  Hearst  American  article  did  not  follow 
the  tip;  for  the  industrials,  as  shown  by  the  averages, 
did  not  cross  the  closing  figure  of  the  day  on  which 
the  bullish  advice  was  given  until  the  second  trading 
day  of  December,  seven  months  after. 

It  is  possible,  however,  for  us  to  assume  charitably 
that  this  expounder  of  the  barometer  was  not  quite 
so  superficial  as  he  sounds.  There  may  have  been  in 
his  mind  a  recollection  of  the  bull  market  of  1919, 
which  the  industrials  made  entirely  off  their  own  bat. 
If  you  will  study  the  chart  published  with  a  later  chap- 
ter, headed  "An  Exception  to  Prove  the  Rule,"  you 
will  see  that  such  an  experience  could  not  be  repeated 
unless  our  railroad  stocks  returned  to  government 
ownership  and  guaranty — a  condition  which  at  that 
time  took  them  entirely  out  of  the  speculative  class 
and  left  them  moving  downward  with  bonds  and  other 
securities  held  for  fixed  income.  These,  as  we  know, 
inevitably  decline  in  price  with  an  advance  in  the  cost 
of  living,  which  was  then  in  full  flood. 

This  illustration  serves  to  emphasize  the  fact  that 
while  the  two  averages  may  vary  in  strength  they  will 
not  materially  vary  in  direction,  especially  in  a  major 
movement.  Throughout  all  the  years  in  which  both 


I4o    THE  STOCK  MARKET  BAROMETER 

averages  have  been  kept  this  rule  has  proved  entirely 
dependable.  It  is  not  only  true  of  the  major  swings 
of  the  market  but  it  is  approximately  true  of  the  sec- 
ondary reactions  and  rallies.  It  would  not  be  true  of 
the  daily  fluctuation,  and  it  might  be  utterly  misleading 
so  far  as  individual  stocks  are  concerned.  The  indi- 
cations of  a  single  average  can,  and  do,  look  seduc- 
tively like  the  real  thing,  as  I  have  discovered  to  my 
cost;  for  in  that  way  I  find,  upon  analysis  of  articles 
written  long  ago,  that  I  more  than  once  went  wrong. 
It  says  much  for  the  value  of  our  barometer  that  error 
came  from  trusting  it  too  little  rather  than  too  much. 

Sticking  to  Our  Text 

It  has  been  suggested  that  I  should  discuss  the 
causes  which  were  related  to  the  major  movements  of 
the  stock  market — the  depressions  in  business,  the 
recoveries  and  the  alleged  or  real  overexpansion.  I 
have  my  own  opinion  about  the  causes  of  the  panic 
of  1907.  I  do  not  agree  with  writers  rated  as  com- 
petent as  myself,  who  ascribe  it  to  E.  H.  Harriman 
and  the  "overexpansion"  of  the  American  railroads 
from  1901  to  1906;  who  choose  to  think  that  the 
advance  in  the  Bank  of  England  rate  to  the  sufficiently 
startling  figure  of  7  per  cent  at  the  end  of  1906  was 
a  direct  result  of  gambling  in  railroad  stocks  by  Mr. 
Roosevelt's  "malefactors  of  great  wealth."  And  by 
no  stretch  of  faith  can  I  believe  that  Harriman  pro- 
duced a  panic  in  Alexandria,  Egypt,  in  April,  1907; 
another  in  Japan  within  a  month;  what  the  London 


A  BULL  MARKET— 1908-1909          141 

Economist  called  "the  biggest  financial  disaster  that 
had  overtaken  the  city  since  1857"  in  Hamburg  in 
October;  and  still  another  in  Chile — all  preceding  our 
own  crisis  at  the  end  of  October.  It  has  seemed  to 
me  that  the  subsequent  paralysis  of  railroad  develop- 
ment, which  should  have  gone  on  at  the  billion-dollar- 
a-year  rate  James  J.  Hill  suggested  in  1906,  but  was 
suspended  almost  entirely,  was  a  much  more  serious 
matter  for  the  country  than  the  reciprocal  ownership 
of  railroad  stocks  of  E.  H.  Harriman's  plans.  There 
could  be  no  menace  to  the  public  there,  with  the  Inter- 
state Commerce  Commission  to  protect  us  through 
the  freight  rates. 

But  all  this  is  beside  the  point.  I  am  writing  about 
the  barometer,  not  about  the  weather.  History  reads 
queerly  fourteen  years  after  the  event  to  those  who 
were  in  a  position  to  know  the  facts,  who  might  even 
have  been,  to  at  least  a  modest  extent,  part  of  that 
history.  But  where  it  is  necessary  to  review  history 
here  these  discussions  will  still  stick  to  the  text. 


Chapter  XIII 

NATURE  AND  USES  OF  SECONDARY  SWINGS 

BEFORE  resuming  the  historical  demonstration  of 
the  effectiveness  of  the  stock  market  barometer 
which  has  been  the  subject  of  our  most  recent  discus- 
sions, there  is  a  good  opportunity  here  for  some  con- 
sideration of  the  secondary  swing.  Previous  discus- 
sions have  shown  how  it  was  possible  successfully  to 
diagnose  a  major  swing  in  its  incipient  stages.  But  the 
secondary  movement  postulated  in  Dow's  Theory  is 
a  different  matter.  We  have  proved  by  analysis  the 
correctness  of  the  theory  of  the  market  as  containing 
three  distinct  and,  in  a  way,  simultaneous  movements 
— the  great  primary  swing  up  or  down ;  the  secondary 
movement,  represented  by  reactions  in  a  bull  market 
and  corresponding  rallies  in  a  bear  market;  and  the 
daily  fluctuation.  It  may  be  that  this  discussion  will 
seem  to  be  addressed  more  to  the  speculator  or  embryo 
investor  than  to  those  who  consider  using  the  stock 
market  barometer  as  a  guide  and  warning  to  business. 

How  to  Call  the  Turn 

It  may  be  conceded  at  once  that  if  it  is  hard  to  call 
the  turn  of  a  great  bear  or  bull  market  it  is  still  harder 
to  say  when  a  secondary  movement  is  due,  although 
there  are  no  insuperable  difficulties  in  the  way  of  show- 

14* 


SECONDARY  SWINGS  143 

ing  the  termination  of  the  secondary  movement  and 
the  resumption  of  the  main  market  trend.  We  cannot 
dogmatize  about  the  depth  of  such  movements,  in 
duration  or  extent.  We  have  seen,  from  a  study  of 
what  was  really  a  secondary  reaction  in  a  bull  market 
aggravated  by  the  San  Francisco  calamity  in  1906, 
that  such  a  reaction  can  look  deceptively  like  the  real 
thing — the  development  of  a  new  major  swing.  It 
can  look  so  vigorous  and  convincing,  as  in  the  case  of 
the  Northern  Pacific  panic  of  1901,  that  even  experi- 
enced traders  will  rashly  assume  that  the  bull  market 
is  over. 

Dow  estimated  the  length  of  a  counter  movement 
at  from  forty  to  sixty  days,  but  subsequent  experience 
has  shown  that  this  longer  range  is  exceedingly  rare 
and  that  the  duration  may  be  appreciably  less  than 
forty  days.  The  daily  fluctuation  might  be  so  con- 
siderable as  to  constitute  almost  a  secondary  reaction 
in  itself,  if  the  extent  of  it  were  all  we  were  consider- 
ing. When  it  was  known  that  the  government  would 
take  over  the  railroads,  at  the  end  of  December,  1917, 
there  was  an  advance  in  a  single  day  in  the  railroad 
average  of  over  six  points.  There  have  been  true 
secondary  movements  which  did  not  carry  even  so  far 
as  this.  It  is  a  tried  rule,  which  will  help  to  guide  us 
in  studying  the  secondary  movement,  that  the  change 
in  the  broad  general  direction  of  the  market  is  abrupt, 
while  the  resumption  of  the  major  movement  is  appre- 
ciably slower.  The  latter  is  frequently  foretold  by  a 
line  of  accumulation  in  a  bull  market  or  a  line  of  dis 
tribution  in  a  bear  market. 


144    THE  STOCK  MARKET  BAROMETER 
More  Meteors  Than  Stars 

Who  is  to  foresee  the  sharp  break?  It  seems  to 
depend  upon  a  set  of  causes  altogether  different  from 
the  adjustment  of  prices  to  values,  which  is  the  main 
function  and  intent  of  the  major  swing.  It  repre- 
sents a  technical  market  condition  more  than  a  summing 
up  and  reflection  of  general  knowledge.  It  means, 
as  the  professionals  say,  that  there  is  too  much  com- 
pany on  the  bull  side;  or,  conversely,  that  people  are 
selling  a  bear  market  short,  regardless  of  the  dimin- 
ishing floating  supply  of  stocks.  I  have  declined  in 
more  than  one  place  to  advise  any  man  to  speculate. 
That  virtuous  attitude  is  easy  and  cheap,  but  it  will 
acquire  more  significance  if  I  do  not  presume  to  advise 
against  speculating  where  a  free  American  citizen  feels 
he  has  the  qualities  necessary  for  success  and,  more  par- 
ticularly, if  he  is  the  kind  of  man  who  can  stand  suc- 
cess. That  is  the  severest  of  all  tests,  in  other  places 
than  Wall  Street.  There  have  been  many  meteors 
in  the  financial  sky,  but  few  fixed  stars. 

In  the  secondary  movement  of  the  market  the  pro- 
fessional has  a  real  and  abiding  advantage  over  the 
amateur.  It  is  an  emergency  in  which  his  technical 
experience  tells.  "Tape  reading"  is  a  sort  of  sixth 
sense,  and  the  man  on  the  floor  can  feel  a  change  com- 
ing even  better  than  the  most  accomplished  tape  reader 
if  he  has  real  aptitude  for  his  work.  There  are  some 
games  in  which  the  amateur  is  better  than  the  pro- 
fessional. There  are  many  in  which  he  seems  at  least 


SECONDARY  SWINGS  145 

as  good.  But  in  the  long  run,  in  nearly  all  games, 
the  professional  will  win  oftener  than  the  amateur. 
He  will  win  more  when  there  is  anything  consider- 
able at  stake  and  he  will  lose  less  when  losses  are 
inevitable. 

Advantage  of  the  Expert 

Some  authorities  on  auction  bridge  estimate  that 
good  cards  constitute  80  per  cent  of  the  advantage 
in  the  game.  An  indifferent  or  unsound  player  can 
win,  and  even  continue  to  win  over  an  extended  period, 
if  he  holds  good  hands,  enjoys  rather  more  than  aver- 
age luck  and  is  messed  with  good  partners.  But  the 
remaining  20  per  cent  makes  the  vital  difference 
between  the  incurably  mediocre  player  and  the  expert. 
Playing  constantly  over  a  sufficient  period  of  time  to 
average  the  element  of  chance,  the  first-class  player 
must  win.  He  will  win,  moreover,  without  any  unfair 
advantage.  If,  indeed,  he  depended  upon  collusive 
information  from  his  partner,  for  instance,  he  would 
be  merely  a  sharper  and  never  a  really  first-class 
player.  The  advantage  of  the  crook  has  always  been 
overestimated.  His  mentality  is  at  some  point  defec- 
tive, or  he  would  not  be  a  crook.  I  have  fallen  in  with 
a  few — surprisingly  few — crooks  in  Wall  Street,  in 
both  the  professional  and  the  amateur  class.  They 
are  soon  detected,  and  with  their  sole  advantage 
eliminated  they  find  their  level  at  the  very  bottom  of 
the  heap.  Nemo  repente  fit  turpissimus;  and,  in  prac- 
tice, they  amount  to  little. 


i46     THE  STOCK  MARKET  BAROMETER 
Graduating/  Professionals 

Of  the  many  successful  speculators  who  fight  for 
their  own  hand,  like  Hal  o'  the  Wynd,  those  who,  not 
being  members  of  the  Stock  Exchange  or  partners  in 
any  brokerage  house,  are  therefore  obliged  to  con- 
cede the  broker's  commission  and  the  market  turn,  all 
sooner  or  later  become,  in  every  intent,  professionals. 
They  devote  to  the  business  of  speculation  exactly 
the  jealously  exclusive  attention  which  a  successful 
man  gives  to  any  kind  of  business.  The  outsider  who 
takes  only  "an  occasional  flutter"  in  the  stock  market, 
however  shrewd  and  well  informed  he  may  be,  will 
lose  money  in  the  secondary  swings,  where  he  is  pitted 
against  the  professional.  He  cannot  recognize  the 
change  in  movement  quickly  enough  to  adapt  his  atti- 
tude; he  is  usually  constitutionally  averse  from  taking  a 
loss  where  he  has  previously  been  right.  The  pro- 
fessional acts  upon  the  shortest  notice,  and  reactions 
or  rallies  give  little  notice. 

Wall  Street  Normally  Bullish 

But  the  intelligent  amateur  is  on  all  fours  with  the 
professional  when  a  bull  market  has  reacted  and  be- 
come dull.  In  the  old  days  Wall  Street  formulated 
a  number  of  maxims  for  itself,  and  one  of  these  was, 
"Never  sell  a  dull  market."  It  is  bad  advice  in  a 
major  bear  swing,  for  the  market  then  will  become 
dull  after  a  sharp  rally,  and  experienced  traders  will 
accordingly  put  out  their  shorts  again.  But  Wall 


SECONDARY  SWINGS  14? 

Street  is  inherently  bullish.  One  reason  for  this  is 
that  the  financial  district  does  not  make  money  in  a 
bear  market,  contrary  to  the  ideas  of  people  who  think 
that  then  is  the  time  when  the  Street  reaps  its  harvest, 
and  wickedly  turns  disaster  ,to  its  own  advantage. 
Wall  Street  lives  on  commissions,  and  not  on  what  it 
might  make  by  selling  short  the  securities  it  originates. 
Large  trading  and  large  commissions  go  together. 
They  are  a  feature  of  a  bull  market,  but  never  one 
of  a  bear  market.  So  true  is  it  that  Wall  Street  is 
normally  and  healthily  bullish,  by  experience,  that  I 
have  never  known  a  great  trader,  with  his  first  reputa- 
tion established  as  a  bear  operator,  who  did  not  either 
turn  bull  or  drop  out  of  the  market  altogether. 

When  we  studied  the  major  swings  we  saw  that 
bull  markets  last  longer  than  bear  markets,  and  we 
might  have  seen  that  over  a  period  of  years  long 
enough  to  average  both  bull  and  bear  swings  the 
tendency  seems  upward,  or  at  least  has  heretofore 
advanced,  with  the  growing  wealth  of  the  country. 
Personally,  I  do  not  believe  that  the  war  has  changed 
this  fundamental  fact,  at  least  for  the  inexhaustible 
United  States,  if  a  special  movement  of  the  railroads, 
to  be  treated  later,  for  a  time  at  least,  modifies  the 
assumption. 

James  R.  Keene 

So  far  as  the  bear  trader  is  concerned,  I  am  entirely 
certain  that  James  R.  Keene  lost  as  much  money  as 
he  ever  made  on  the  bear  side,  and  that  he  made 
all  the  money  he  left  and  spent  on  his  racing  stable 


i48    THE  STOCK  MARKET  BAROMETER 

by  his  purchases  of  securities  which  subsequently 
appreciated  in  value.  I  never  enjoyed  his  intimate 
acquaintance.  It  is  not  unfair,  at  this  distance  of  time, 
to  say  that  newspaper  men  with  responsibilities  do  not 
cultivate  intimacy  with  large  professional  speculators. 
Such  intimacy  can  be  misconstrued,  however  innocent 
the  personal  relations  may  be,  and  easily  results  (for 
Wall  Street  is  reeking  with  gossip  and  scandal)  in 
giving  the  reporter  an  undesirable  reputation  for  being 
the  interested  mouthpiece  of  that  particular  operator. 
This,  of  course,  is  a  condition  which  no  clean  news- 
paper could  or  should  tolerate. 

This  is  not  to  say  that  the  newspaper  men,  or  even 
most  of  those  who  had  the  entree  to  Keene's  highly 
inaccessible  suite  at  his  son-in-law,  Talbot  J.  Taylor's 
office  in  Broad  Street,  were  not  men  of  honor.  There 
were  good  reasons  for  liking  Keene,  who  was  by  no 
means  the  cold  and  bloodless  bandit  some  people,  with 
ideas  of  financiers  gathered  from  the  scarehead  news- 
papers or  the  moving-picture  screen,  have  supposed. 
He  had  attractive  qualities,  and  he  was  a  man  of  his 
word,  even  if  he  was  merciless  to  those  who  dealt  with 
him  and  failed  to  keep  theirs.  All  of  us  liked  his 
admiring  affection  for  his  son  Foxall,  and  his  sports- 
man's love  of  a  fine  horse.  Little  that  his  enemies 
ever  did  to  him  in  the  stock  market — and  that  was 
plenty — hurt  him  like  the  death  of  his  favorite  Sys- 
onby,  a  horse  he  bred  himself  and  one  of  the  greatest 
three-year-olds  that  ever  looked  through  a  bridle. 
Among  the  newspaper  men  who  could  afford  to  know 
Keene  was  Edwin  Lefevre,  then  on  the  New  York 


SECONDARY  SWINGS  149 

Globe.  But  it  is  no  more  than  just  to  say  that  Lefevre 
was  less  a  friend  than  a  connoisseur  of  Keene.  He 
studied  him,  in  a  highly  amusing  way,  for  use  in  his 
cynical  but  effective  Wall  Street  Stones,  in  Samson 
Rock  of  Wall  Street,  The  Golden  Flood  and  other 
tales  of  a  like  character,  now  somewhat  out  of  date 
but  interesting  reading  for  those  who  knew  the  differ- 
ent Wall  Street  of  twenty  years  ago. 

Addis  on  Cam  mack 

There  is  another  reason  why  bear  operators  are 
credited  with  more  short  selling  and  market  "wreck- 
ing" than  they  ever  performed  or  even  conceived. 
Such  an  operator  can  bull  stocks  and  keep  himself  in 
the  background,  while  a  campaign  on  the  bear  side 
is  usually  dramatic,  with  the  principal  figure  very  much 
in  the  spotlight.  Addison  Cammack's  era  was  rather 
before  my  time,  but  people  who  knew  him  well  say 
that  his  bear  campaigns  were  short,  sometimes  success- 
ful and  sometimes  not,  and  that  he  would  have  been 
soon  ruined  or  driven  into  other  environment  if  he 
had  not  been  an  excellent  judge  of  values,  and  much 
more  interested  financially  in  the  growth  and  prosper- 
ity of  the  country  than  in  efforts  to  check  it.  He  made 
his  big  money  buying  Northern  Pacific,  on  reconstruc- 
tion, at  $7  a  share.  He  probably  had  more  real 
belief  in  the  greatness  of  the  United  States  than  some 
of  those  critics  who  are  so  ready  to  impugn  Wall 
Street's  patriotism.  Keene  was  right,  if  premature,  in 
his  abortive  bull  campaign  in  Southern  Pacific. 


150    THE  STOCK  MARKET  BAROMETER 

Selling  Commodities  Short 

A  bear  has  few  friends,  because  obviously  he  can- 
not make  money  unless  other  people  lose  it.  It  is 
curiously  illogical  that  this  feeling  against  him  extends 
even  to  the  cases  where  he  forsakes  stocks  for  opera- 
tions on  the  short  side  in  commodities  like  wheat  or 
cotton.  But  there  is  nothing  incompatible  with  a 
bull  position  in  stocks  and  a  bear  position  in  wheat. 
There  is  nothing  antagonistic  to  the  greater  prosperity 
of  the  country  in  believing  that  such  prosperity  will 
be  enhanced  if  the  humble  consuming  worker  can  get 
more  flour  or  bread  at  lower  prices.  It  would  be 
utterly  impossible  to  synchronize  the  movements  of 
wheat  or  cotton  with  those  of  stocks.  These  commodi- 
ties often  decline  when  securities  are  advancing.  It  is 
not  the  general  opinion,  but  it  seems  to  me  that  a  bear 
of  wheat  who  breaks  a  corner  in  that  commodity, 
even  if  his  end  is  selfish,  is  performing  something  in 
the  nature  of  a  public  service. 

Such  an  opinion  as  this,  of  course,  will  be  unpopular 
with  the  farmer  and  still  more  unpopular  with  the 
farmer's  political  friends,  to  whom  wheat  at  $5  a 
bushel  looks  like  prosperity,  with  wealth  beyond  the 
dreams  of  avarice.  It  might  well  mean  famine  and 
widespread  destitution.  The  farmer  and  his  friends 
have  become  sensitive  since  their  own  wheat  pool  (not 
different  morally  from  any  other  attempted  corner  in 
the  staff  of  life),  formed  in  1919  to  carry  the  price 
of  wheat  above  $3  a  bushel,  collapsed  under  the  futile 
leadership  of  the  Non-Partisan  League  and  the  moral 


SECONDARY  SWINGS  151 

support  of  some  of  the  members  of  what  now  con- 
stitutes the  agricultural  "bloc"  in  the  United  States 
Senate.  That  corner  failed,  and  it  is  no  unkindness 
to  the  farmer  to  say  that  it  deserved  to  fail.  The 
stock  market  of  1920  was  warning  him  that  such  a 
pool  could  not  succeed,  in  ample  time  for  him  to  have 
realized  all  his  wheat  at  prices  well  over  $2  a  bushel. 

How  the  Barometer  Adjusts  Itself 

We  are  not  wandering  from  our  text.  Weakness  in 
the  cotton  or  grain  markets  may  have  much  to  do  with 
secondary  reactions  in  the  stock  market,  if  only  for 
the  financial  commitments  involved.  Secondary  move- 
ments, indeed,  are  influenced  by  much  more  transitory 
conditions  than  any  of  those  which  govern  the  major 
swing.  The  question  is  pertinently  asked,  "Do  the  aver- 
ages predict  a  secondary  reaction  in  any  dependable 
way?"  There  would  be  such  a  prediction,  naturally, 
if,  in  the  course  of  a  major  bull  swing,  the  market  made 
a  line  in  both  averages,  and  then  a  price  below  the 
line  to  indicate  that  saturation  point  had  been  reached; 
and  the  converse  would  be  true  in  a  bear  market. 
But  experience  tells  us  that  when  the  line  occurs  it  is, 
generally,  not  before  but  after  a  secondary  break  or 
rally.  This  line,  then,  is  most  useful  to  the  speculator 
who  has  previously  sold  and  wants  to  get  into  the 
market  again,  because  a  bull  indication  after  a  line  of 
accumulation  would  point  the  way  to  a  new  figure 
higher  than  that  from  which  the  secondary  decline 
took  its  origin.  Such  a  new  top  would  be  conclusive 
evidence,  on  all  our  records,  that  the  bull  movement 
had  been  resumed. 


152     THE  STOCK  MARKET  BAROMETER 

But  these  discussions  are  designed  less  for  specu- 
lators than  for  those  who  wish  to  study  the  stock 
market  barometer  as  a  guide  to  the  general  business 
of  the  country.  These  students  may  well  ask  what  is 
the  real  purpose  and  usefulness  of  the  secondary 
movement.  If  we  are  allowed  to  mix  our  metaphor, 
it  may  be  said  that  the  secondary  movement  is  not 
unlike  a  device  sometimes  used  for  adjusting  com- 
passes. Many  of  you  have  seen  a  ship's  launch  de- 
scribing circles  in  the  harbor,  and  wondered  what  it 
meant.  I  am  well  aware  that  the  metaphor  is  anything 
but  perfect,  but  it  is  clear  that  the  secondary  move- 
ment serves  the  valuable  purpose  of  correcting  our 
barometer.  Our  guide  is,  to  that  extent  at  least,  self- 
adjusting.  Remember  that  we  are  dealing  with  no 
such  certain  element  as  the  mercury  in  the  tube,  whose 
properties  we  know  all  about.  The  stock  market 
barometer  is  taking  every  conceivable  thing  into  ac- 
count, including  that  most  fluid,  inconstant  and  incal- 
culable element,  human  nature  itself.  We  cannot, 
therefore,  expect  the  mechanical  exactness  of  physical 
science. 

Not  Too  Good  to  Be  True 

We  might  well  be  disposed  to  suspect  our  barom- 
eter if  it  were  too  exact.  Our  attitude  would  be  that 
of  a  city  magistrate  toward  police  evidence,  when 
every  police  witness  tells  exactly  the  same  story  in  the 
same  words.  Such  evidence  is  altogether  too  good  to 
be  true.  I  am  repeatedly  asked  if  I  am  quite  sure 
about  the  low  or  high  point  of  a  given  turning  date; 


SECONDARY  SWINGS  153 

whether,  for  instance,  the  low  of  the  bear  market 
from  which  we  are  now  emerging  was  really  June, 
1921,  or  should  not  be  considered  in  relation  to  the 
new  low  point,  scored  by  the  industrials  alone,  in 
the  following  August.  It  has  been  said  that  the 
averages  must  confirm  each  other,  but  if  you  like  to 
take  it  that  way  and  it  suits  your  habit  of  mind,  by 
all  means  allow  yourself  that  much  latitude.  I  can- 
not see  that  it  makes  any  material  difference.  I  have 
been  shown  figure  charts  where  bear  and  bull  move- 
ments, from  the  course  of  a  single  constantly  active 
stock  like  United  States  Steel  common,  were  profes- 
sedly predicted  with  mathematical  exactness.  They 
have  not  inspired  me,  and  I  do  not  believe  that  they 
could  stand  the  long  years  of  test  to  which  our  barom- 
eter has  been  subjected. 

There  are  other  critics,  far  less  kindly  and  with  no 
real  desire  to  help,  who  find  no  difficulty  in  picking 
holes  in  our  theory  because  they  do  not  wish  to  be 
convinced.  They  are  merely  contentious.  They  can, 
of  course,  find  plenty  of  movements,  especially  secon- 
dary ones,  which  they  think  the  barometer  failed  to 
forecast.  What  of  it?  An  instrument  of  any  such 
accuracy  as  they  demand  would  be  a  human  impossi- 
bility, and  indeed,  I  do  not  think  that  any  of  us,  in 
the  present  stage  of  man's  moral  development,  could 
be  trusted  with  such  a  certainty.  One  way  to  bring 
about  a  world  smash  would  be  for  some  thoroughly 
well-intentioned  altruist  to  take  the  management  of  the 
planet  out  of  the  hands  of  its  Creator. 


Chapter  XIV 

1909,  AND  SOME  DEFECTS  OF  HISTORY 

SINCE  we  have  set  the  understanding  of  the  stock 
market  barometer  as  our  goal,  we  are  not  to  be 
discouraged  by  the  real  and  fancied  obstacles  still  re- 
maining. We  can  always  hearten  ourselves  by  looking 
back  and  seeing  how  much  we  have  already  overcome. 
Perhaps  the  reward  is  in  the  race  we  run,  not  in  the 
prize.  This  is  not  to  say  that  the  mere  reading  of 
this  series  of  studies  is  any  achievement  if  the  reader 
has  not,  thereby,  added  to  his  mental  bank  balance. 
But  if  we  look  back  we  can  see  that  we  have  not  only 
established  Dow's  theory  of  the  price  movement,  but 
constructed  or  deduced  a  workable  barometer  from 
it — a  barometer  with  the  invaluable  quality  of  long 
distance  forecast.  We  should  know  our  theory  by 
heart.  It  is  that  the  stock  market  has  three  move- 
ments— its  broad  swing  upward  or  downward,  ex- 
tending from  a  year  to  three  years;  its  secondary 
reactions  or  rallies,  as  the  case  may  be,  lasting  from 
a  few  days  to  many  weeks;  and  the  daily  fluctuation. 
These  movements  are  simultaneous,  much  as  the 
advancing  tide  shows  wave  recessions,  although  each 
succeeding  roller  comes  further  up  the  beach.  Per- 
haps it  might  be  permissible  to  say  that  the  secondary 
movement  suspends  for  a  time  the  great  primary 
swing,  although  a  natural  law  is  still  in  force  even 

154 


SOME  DEFECTS  OF  HISTORY        155 

when  we  counteract  it.  My  pen  would  fall  from  my 
fingers  to  the  ground  or  the  desk,  by  the  attraction  of 
gravitation,  and  that  law  continues  operative,  if  not 
active.  In  a  like  way  of  putting  it,  the  secondary 
movement  can  be  regarded  as  simultaneous  with  the 
major  swing,  which  still  continues  to  govern. 

That  Unbalanced  Equation 

It  has  been  necessary  to  refer  in  previous  articles  to 
business  charts  and  records,  and  I  would  be  the  last 
to  seek  a  quarrel  with  the  compilers  of  such  useful 
data.  All  I  contend  is  that  these  charts  and  records 
are  hardly,  in  a  useful  sense,  barometers.  They  are 
hazy  about  the  future,  even  where  they  make  the 
assumption  that  they  are  based  upon  a  great  law  of 
physics — that  action  and  reaction  are  equal.  They 
have  still  to  show  me  that  they  have  included  all  the 
factors  of  their  equation.  Certainly  these  business 
charts  did  not  include  the  possibility  of  Germany  win- 
ning the  war  in  1918.  The  bear  market  in  stocks  in 
1917  took  count  of  all  that  these  tabulations  ever 
formulated,  and  this  overwhelming  possibility  besides. 
It  is  true  that  we  can  form  little  conception  of  what 
may  happen  in  the  future  unless  we  are  familiar  with 
what  has  happened  in  the  past,  where  like  causes 
have  produced  like  effects.  But  forecast  may  be  mis- 
taken or  premature  long  enough  to  ruin  any  business 
man,  with  no  other  guide  than  that.  One  of  these 
business-chart  authorities  not  long  ago  advocated  the 
purchase  of  a  certain  stock,  on  the  basis  of  the  earn- 


156     THE  STOCK  MARKET  BAROMETER 

ings  and  dividends  for  a  period  of  ten  years  past. 
There  was  a  fundamental  change  in  conditions,  ag- 
gravated by  an  ill-judged  change  in  policy,  and  the 
people  who  bought  that  stock  suffered  severe  losses. 
How  would  a  present  holder  of  such  a  stock  as  Amer- 
ican Sugar,  for  instance,  have  fared  if  he  had  bought 
the  common  stock  in  1920  on  its  dividend  record? 

Insufficient  Premises 

Reasoning  of  that  kind  has  too  narrow  a  base.  It 
lacks  foresight.  It  is  like  saying  that  a  patient  will 
recover,  irrespective  of  his  symptoms,  because  he  has 
enjoyed  good  health  for  ten  years  past.  This  is  an 
example  of  reasoning  from  insufficient  premises.  No 
doubt  the  possibilities  of  changes  in  management  and 
other  things,  which  sometimes  wreck  concerns  with 
a  previously  good  dividend  record,  are  averaged  in 
the  total  of  a  recording  agency's  tables.  But  even 
when  these  things  are  averaged  they  are  a  record  and 
not  a  barometer.  The  data  of  the  Weather  Bureau 
are  of  the  highest  value,  but  they  do  not  pretend  to 
predict  a  dry  summer  or  a  mild  winter.  You  and  I 
know  from  personal  experience  that  the  weather  in 
New  York  is  likely  to  be  cold  in  January  and  hot  in 
July.  We  could  infer  that  much  without  assistance 
from  the  Weather  Bureau.  That  bureau  can  give  us 
only  an  inadequately  short  view.  It  cannot  tell  us 
that  there  will  be  fine  weather  for  our  picnic  the  day 
after  to-morrow.  Still  less  can  it  tell  the  farmer  that 
the  temperature  and  humidity  of  the  coming  summer 


SOME  DEFECTS  OF  HISTORY        157 

will  be  such  that  he  should  plant  potatoes  instead  of 
corn.  It  can  show  the  records  and  probabilities;  but 
the  farmer  must  use  his  own  judgment;  while  we  take 
chances  on  the  kind  of  weather  that  will  make  or 
mar  our  picnic. 

How  Little  the  Best  Man  Knows 

We  have  seen  that  the  stock  market  barometer  does 
predict.  It  shows  us  what  will  happen  to  the  general 
volume  of  business  many  months  ahead.  It  even  goes 
further  and  warns  us  of  the  danger  of  international 
events  which  could  upset  all  ordinary  calculations 
based  on  the  course  of  business  as  inferred  from  the 
records.  It  cannot  be  too  often  repeated  that  the 
stock  market  barometer  is  acting  upon  all  the  knowl- 
edge available.  I  recently  asked  one  of  the  greatest 
financiers  in  Wall  Street,  often  credited,  by  sensation- 
loving  journals,  with  the  most  searching  knowledge 
of  financial  conditions  and  their  influence  upon  coming 
events,  what  sort  of  percentage  of  the  available  knowl- 
edge he  supposed  he  had.  He  said,  "I  have  never 
worked  that  out.  But  if  I  had  50  per  cent  of  all  the 
knowledge  which  is  reflected  in  the  movement  of  stocks 
I  am  confident  that  I  would  be  far  better  equipped 
than  any  other  man  in  Wall  Street."  This  was  from 
a  banker  who  handles  the  financing  of  great  railroads 
and  industrial  corporations,  whose  foreign  connections 
are  of  the  very  highest  class.  When  he  could  confess 
this  without  false  modesty  to  one  he  would  not  be 
foolish  enough  to  deceive,  how  absurd  must  be  the 


158     THE  STOCK  MARKET  BAROMETER 

assumed  omniscience  of  the  "financial  octopus"   the 
politician  is  so  fond  of  parading  1 

A  Needless  Accuracy 

We  have  come  a  long  way  in  the  reading  of  the 
barometer  based  upon  Dow's  Theory.  We  have  seen 
that  a  "line"  in  the  average — a  succession  of  closing 
prices,  over  a  sufficient  number  of  days  for  a  fair 
volume  of  trading  within  a  narrow  range — must  indi- 
cate either  accumulation  or  distribution;  and  that 
a  movement  of  the  average  price  out  of  that  line, 
downward  or  upward,  will  confidently  indicate  a 
change  in  the  general  market  direction  of  at  least  a 
secondary  and  even  a  primary  character,  which  we  can 
depend  upon  where  either  average  is  confirmed  by  the 
other. 

We  have  also  satisfied  ourselves  that  the  averages 
must  confirm  each  other,  although  they  may  not  break 
out  of  their  respective  lines  on  the  same  day  or  in  the 
same  week.  It  is  sufficient  if  they  take  the  same  direc- 
tion. It  is  by  no  means  necessary,  as  experience  shows, 
that  the  low  or  the  high  point  of  a  primary  move- 
ment should  be  made  in  both  averages  on  the  same 
day.  All  we  assume  is  that  the  market  has  turned, 
with  the  two  averages  confirming,  even  although  one 
of  the  averages  subsequently  makes  a  new  low  point 
or  a  new  high  point,  but  is  not  confirmed  by  the  other. 
The  previous  lows  or  highs  made  by  both  averages 
may  best  be  taken  as  representing  the  turn  of  the 

market. 

i 


SOME  DEFECTS  OF  HISTORY        159 

This  seems  to  be  a  difficulty  which  is  still  puzzling 
a  number  of  people  who  expect  an  absolute  mathe- 
matical accuracy  from  the  averages,  such  as  I  would 
be  the  last  to  claim,  if  only  for  the  reason  that  it  is 
not  needed.  One  critic  believes  that  I  am  wrong  in 
assuming  that  the  low  point  of  the  last  bear  movement 
was  in  June,  1921,  because  the  industrials  made  a 
lower  point  in  the  following  August.  But  that  lower 
point  was  not  confirmed  by  the  railroad  average. 
Consequently,  it  is  negligible  from  our  point  of  view, 
although  if  it  adds  to  the  sum  of  that  gentleman's 
certainty  he  will  not  go  far  wrong  if  he  dates  his 
upward  movement  from  August  and  not  from  June. 

A  Double  Top  in  igog 

In  the  present  discussion  it  will  be  useful  to  show 
the  turn  of  the  market  to  the  bear  side  in  1909.  This 
is  likely  to  be  confusing  to  our  meticulous  critics,  be- 
cause the  railroad  stocks  made  their  high  for  the  pre- 
ceding bull  movement  at  134.46  in  August,  1909; 
while  the  industrials  made  a  high  of  100.12  at  the 
end  of  the  following  September,  100.50  early  in  Octo- 
ber, and  100.53,  the  highest  of  the  year,  at  the  begin- 
ning of  November.  The  last  high,  taken  with  that 
preceding,  is  an  example  of  what  is  called  a  double 
top.  It  is  by  no  means  infallible,  but  is  often  useful; 
and  experience  has  shown  that  when  the  market  makes 
a  double  top  or  a  double  bottom  in  the  averages  there 
is  strong  reason  for  suspecting  that  the  rise  or  decline 
is  over.  If,  however,  I  say  that  a  bull  market  saw  its 


160    THE  STOCK  MARKET  BAROMETER 

top  in  August,  1909,  and  that  the  bear  market  set  in 
from  that  date,  somebody  will  tell  me  that  the  bear 
movement  cannot  be  said  to  have  set  in  until  the 
beginning  of  November.  What  does  it  matter?  If 
we  combine  the  condition  exhibited  then  with  what  we 
have  learned  from  a  study  of  the  line  of  distribution 
or  accumulation,  we  shall  see  that  distribution  pre- 
ceding an  important  downward  turn,  possibly  secon- 
dary but  proving  to  be  primary  in  this  case,  had  been 
in  progress  and  had  established  its  inevitable  con- 
sequences, at  any  rate  before  the  completion  of  the 
first  week's  trading  of  November,  1909. 

Bulls  of  Stocks  Well  Warned 

That  seems  to  me  about  as  adequate  a  barometrical 
indication  as  we  dare  expect  from  a  gauge  which  has 
to  take  into  consideration  all  the  fallibility  of  human 
nature  itself.  Never  was  the  bull  of  stocks  given  such 
repeated  chances  as  in  1909  to  take  profits  at  the  top, 
or  a  few  points  below  it.  In  a  previous  discussion  I 
have  said  that  the  bull  market  which  originated  in 
December,  1907,  was  actually  almost  unpopular.  The 
previous  bear  market  had  predicted  an  era  of  corpora- 
tion baiting,  originated  by  President  Roosevelt,  who 
could  never  have  foreseen  the  absurd  lengths  to  which 
his  animadversions  upon  "malefactors  of  great 
wealth"  would  be  carried,  or  the  devastating  implica- 
tions which  would  be  drawn  by  people  much  more 
ignorant  and  far  less  sincere  than  himself. 

The  bull  market  of  1908-9  did  not  please  a  number 


SOME  DEFECTS  OF  HISTORY         161 

To  Criticize  a  Critic 

of  highly  respectable  and  competent  critics.  I  have 
appreciated  and  recommended  elsewhere  Forty  Years 
of  American  Finance,  by  Alexander  D.  Noyes.  His 
review  appears  to  have  been  carried  only  to  the  begin- 
ning of  1909,  to  judge  by  his  concluding  paragraph. 
He  seems  to  reprehend  the  bull  market  then  in  prog- 
ress. He  certainly  failed  to  see  that  it  would  continue 
in  force  up  to  August,  so  far  as  the  railroads  were 
concerned,  up  to  November  as  shown  by  the  industrial 
average,  and  that,  at  the  end  of  the  year  1909,  the 
railroads  would  be  no  lower  than  one  hundred  and 
thirty  on  December  3ist,  as  against  one  hundred  and 
thirty-four  in  the  middle  of  August,  and  the  indus- 
trials a  bare  point  away  from  the  top.  Mr.  Noyes 
says,  in  speaking  of  the  bull  market,  with  what  can 
fairly  be  called  a  somewhat  unsuccessful  essay  in 
prophecy : 

"The  end  of  this  singular  demonstration  came  with  the  open- 
ing of  1909,  when  facts  were  suddenly  recognized,  when  prices 
for  steel  and  other  commodities  came  down,  and  when  the 
Stock  Exchange  demonstrations  ended.  With  the  closing  of 
the  year  1908,  this  history  may  properly  close;  for  it  marked 
the  ending  of  a  chapter." 

But  we  have  seen,  from  the  record  of  the  averages, 
that  the  chapter  was  not  closed  so  summarily  as  Mr. 
Noyes  assumed.  We  may  say,  for  convenience,  that 
the  bull  market  had  spent  its  force  in  August,  1909 — 
or  in  November,  as  we  choose  to  look  at  it.  But  the 


1 62    THE  STOCK  MARKET  BAROMETER 

bear  market  which  foresaw  the  next  period  of  depres- 
sion did  not  begin  to  "hit  on  all  cylinders"  until 
January,  1910.  Here  again  we  see  a  profound  and 
able  observer  influenced  by  accepting  a  record  for  a 
barometer. 

A  Record  Too  Brief 

To  a  student  of  history — and  the  writer  modestly 
claims  to  be  something  of  the  kind  himself — it  is 
source  of  unceasing  regret  that  there  is  relatively  so 
little  real  history  to  study.  Our  table  of  averages  is 
only  truly  effective  for  rather  over  a  quarter  of  a 
century.  When  we  say  that  the  twenty  active  railroad 
stocks  must  confirm  the  twenty  industrials  it  seems  to 
me  that  this  implies,  at  least  in  part,  that  less  than 
forty  stocks  do  not  give  a  sufficiently  inclusive  picture 
of  the  market.  I  might,  in  some  subsequent  discus- 
sion, offer  a  partial  and  incomplete  record  of  the  years 
from  1860  to  1880,  with  an  average  high  and  low, 
month  by  month,  of  fifteen  miscellaneous  stocks.  I 
may  as  well  say  now  that  I  do  not  think  that  it  has 
any  conclusive  teaching  value;  or  that  if  it  had  been 
kept  contemporaneously  with  the  events  of  that  time, 
and  not  compiled  years  after,  it  would  have  given 
business  anything  like  the  thoroughly  trustworthy  indi- 
cations which  we  can  read  in  the  more  perfect  double- 
average  barometer  of  to-day. 

How  History  Records  the  Wrong  Things 

But  my  criticism  of  history  goes  much  further  than 
the  mere  records  of  which  we  are  treating.  It  is  that 


SOME  DEFECTS  OF  HISTORY        163 

all  available  history,  as  far  back  as  we  can  trace — 
from  Egypt  and  the  supposed  cradle  of  the  race  in 
Asia  Minor — records  the  wrong  things.  It  tells  us 
all  about  the  dynasties  of  the  Pharaohs,  and  nothing 
about  those  productive  middle-class  brains  of  manage- 
ment which  made  those  dynasties  rich — gave  them  a 
real  people  to  rule  over.  We  know  that  there  were 
rulers  and  wars,  slaves  and  industrial  workers  enjoy- 
ing different  degrees  of  freedom.  We  know  now  that, 
so  far  from  labor  creating  everything — the  prepos- 
terous major  premise  of  Karl  Marx — labor  creates 
only  a  fraction  of  the  sum  of  human  wealth  compared 
with  the  product  of  brains.  Of  the  "people"  of  the 
past,  in  the  sense  that  the  Bolshevist  demagogue  uses 
the  word,  we  know  a  good  deal.  Professor  Thorold 
Rogers,  of  Oxford,  many  years  ago  compiled  a  tabu- 
lation of  wages  in  England,  from  the  time  of  the 
Tudors.  But  history  seems  to  give  something  of  the 
bottom  and  a  great  deal  too  much  of  the  top.  It  tells 
us  nothing,  or  next  to  nothing,  of  the  middle  class 
which  must  be  the  directing  brain  force  of  a  nation 
with  any  commerce  whatever. 

Where  Are  the  Business  Records? 

What  do  we  really  know  about  the  Carthaginians? 
They  were  the  greatest  trading  nation  of  their  time. 
We  might  well  afford  to  sacrifice  the  detailed  accounts 
of  the  campaigns  of  Hannibal,  to  throw  away  most 
of  what  we  know  about  the  second  Punic  War,  to 
scrap  nearly  all  that  part  of  history,  in  exchange  for 


1 64    THE  STOCK  MARKET  BAROMETER 

only  one  year's  accounting  of  a  typical  Carthaginian 
merchant  engaged  in  foreign  trade.  We  would 
have  more  practical  knowledge,  applicable  to  the 
problems  of  to-day,  from  that  single  merchant's 
books  of  the  year  250  B.C.  than  we  can  get  from 
the  Decline  and  Fall  of  the  Roman  Empire,  and 
all  it  incidentally  says  about  Carthage,  to  say 
nothing  of  the  practical  conduct  of  commerce  in 
those  days. 

How  did  that  merchant  do  his  business  ?  He  dealt 
in  tin  from  Cornwall  and  dyestuffs  from  Tyre.  He 
had  correspondents  all  over  the  known  world,  which 
then  extended  from  Britain  in  the  west  to  India  in  the 
east.  Did  he,  or  could  he,  for  the  tin  or  dyestuffs  he 
received,  pay  exclusively  in  coined  gold  or  silver  ?  He 
may  well  have  exchanged  one  of  his  commodities  for 
another,  or  something  else  for  both.  How  did  he 
pay?  How  did  he  settle  his  balances?  Did  he  have 
bills  of  exchange  ?  I  am  inclined  to  think  that  he  did, 
whatever  form  they  may  have  taken,  although  no 
papyrus  or  parchment  has  survived.  But  history  does 
not  tell  us  the  one  thing  we  want  to  know.  How  did 
the  Carthaginians  adjust  their  international  trade 
balances?  They  necessarily  had  them.  The  mer- 
chants of  Joppa  or  Sidon  or  Alexandria  kept  books,  or 
their  equivalent.  They  had  a  record  of  what  they 
imported  from  Carthage  and  what  they  exported  there 
and  elsewhere.  Rome  owed  Carthage  balances  in 
account,  in  triangular  transactions  which  must  have  re- 
quired some  knowledge  of  double  entry,  with  more 
or  less  regular  exchange  quotations  to  balance  one 


SOME  DEFECTS  OF  HISTORY        165 

national  coinage  against  another.  What  does  history 
tell  us  about  all  this  ?  Absolutely  nothing.  And  yet 
that  knowledge  would  be  of  infinitely  greater  value  to 
us,  would  save  us  more  mistakes,  than  Xenophon's 
deathless  story  of  the  retreat  of  the  ten  thousand. 

Who  Financed  Xerxes? 

Heaven  forbid  that  we  should  lose  the  inspiring 
lesson  of  Thermopylae.  We  have  seen,  in  the  Great 
War,  that  men  are  still  capable  of  rising  to  the  heroism 
of  the  fated  three  hundred.  But  what  of  the  contrac- 
tors who  fed  and  clothed  and  armed  the  "five  million 
men"  in  the  army  of  the  victorious  Xerxes?  "The 
mountains  look  on  Marathon — and  Marathon  looks 
on  the  sea,"  and  they  may  continue  looking  at  each 
other,  until  the  crack  of  doom,  without  telling  us 
the  cost  of  the  ship's  stores  consumed  in  the  fleet  which 
transported  the  defeated  Persians.  "You  have  the 
Pyrrhic  dance  as  yet,  where  is  the  Pyrrhic  phalanx 
gone?"  We  could  dispense  with  the  dance  if  we  knew 
how  the  Pyrrhic  phalanx  got  its  necessary  three  square 
meals  a  day,  and  from  whence  its  food  was  imported. 
I  am  far  from  endorsing  the  Henry  Ford  criticism  of 
history — it  is  not  "bunk";  but  what  would  we  not 
give  for  a  trustworthy  analysis  of  the  economic  con- 
sequences of  Diocletian's  price-fixing  edicts,  in  the 
year  301? 

Where  did  the  Greeks  buy  their  naval  stores  ?  How 
were  they  assembled?  How  was  the  account  settled? 
Was  it  in  coined  money,  or  in  a  draft  written  on  parch- 


1 66    THE  STOCK  MARKET  BAROMETER 

ment,  transferring  one  merchant's  debt  to  another  in 
order  to  balance  the  books  of  a  third?  All  this  is 
left  out  of  classical  history,  and  is  sadly  lacking  in 
modern  history.  It  was  not  until  the  middle  of  the 
nineteenth  century  that  Green  wrote,  not  a  history  of 
the  kings  of  England,  but  A  Short  History  of  The 
English  People.  It  was  all  too  short;  and  the  most 
important  part  of  the  English  people  was  loftily 
minimized — that  respectable  but  inarticulate  element 
which  goes  about  attending  to  its  own  business  and 
manages  to  "keep  out  of  the  papers."  No  one  would 
belittle  the  record  of  the  events  which  led  up  to  the 
signing  of  Magna  Charta.  But  if  I  am  not  greatly 
interested  in  King  John,  I  want  to  know  much  more 
than  history  records  about  those  useful  mercantile  and 
financial  figures  personified  by  Walter  Scott  in  Isaac 
of  York.  The  tortured  Jew's  extracted  tooth  out- 
weighs, in  real  historical  value,  the  sceptre  of  the 
Plantagenet  king. 

What  of  the  Banking  in  the  Middle  Ages? 

The  more  we  search  the  work  of  the  earlier  his- 
torians, the  more  we  are  astonished  at  their  inability 
to  see  a  thing  so  self-evident,  for  they  were  almost 
invariably  drawn  from  the  class  they  failed  to  chron- 
icle, except  where  it  touched  politics.  Froude  devotes 
chapters  of  a  volume  of  his  history  to  the  divorce  of 
Catherine  of  Aragon.  He  tells  us  nothing  of  value 
about  the  financial  transactions  involved  in  such  a 
simple  matter  as  the  collection  and  payment  of  Queen 


SOME  DEFECTS  OF  HISTORY        167 

Catherine's  dowry  to  Henry  VIII.  I  have  heard  ex- 
perienced newspaper  men  say,  "The  most  interesting 
news  never  gets  into  the  papers."  There  is  a  good 
deal  of  cynical  truth  in  that  remark,  and  certainly  the 
most  instructive  historical  facts  seldom  get  into  the 
histories. 

That  is  why  the  diary  of  Samuel  Pepys,  not  written 
for  publication,  tells  us  more  of  the  real  things  we 
want  to  know  than  anything  which  has  ever  been  writ- 
ten, contemporaneously  and  since,  about  the  period  of 
the  Restoration.  It  is  almost  from  that  date  that  we 
begin  to  get  some  familiar  idea  of  what  banking  was 
like,  and  how  it  was  conducted  in  the  great  city  of 
London  two  and  a  half  centuries  ago.  Our  knowl- 
edge, so  far  as  available  records  are  concerned,  hardly, 
in  any  real  sense,  antedates  the  incorporation  of  the 
Bank  of  England,  at  the  end  of  the  seventeenth  cen- 
tury. The  records  of  commerce  and  banking  of  the 
earlier  financiers  are  almost  hopelessly  wanting. 
There  must  have  been  such  records  arising  out  of  the 
colonial  expansion  of  Holland,  Spain  and  Portugal  or, 
working  back  through  the  years,  in  the  trade  of  the 
Genoese  and  the  Venetians.  But  these  highly  respect- 
able historians  seemed  to  think  that  the  birth  of  a 
king's  bastard  was  more  important  than  the  opening 
of  an  avenue  of  trade,  with  the  creation  of  the  finan- 
cial machinery  necessary  for  its  development. 

How  New  Is  Credit? 
I   am   credibly  informed  that  banking,    and   even 

branch  banking,  has  been  in  use  in  China  for  at  least 


two  thousand  years,  with  drafts,  credits  and  the  usual 
banking  machinery,  if  in  a  much  simplified  form.  It 
must  also  be  admitted  that  the  great  structure  of 
to-day's  credit  is  essentially  modern.  But  it  would  be 
absurd  to  assume  that  it  is  all  modern,  merely  because 
we  know  so  little  about  history.  The  trading  of 
Carthage,  Genoa  and  Venice  was  largely  barter.  But 
we  may  be  sure  that  it  was  not  all  barter.  Not  only 
the  Church  canon  law  but  the  Bible  itself  and  like 
works  have  many  allusions  to  the  sin  of  usury.  But 
usury  meant  interest,  and  interest  meant  credit,  just 
as  coinage  meant  exchange.  It  was  not  all  pawn- 
broking;  nor  was  the  banking  of  the  Middle  Ages. 
There  is  some  evidence  that  the  same  people  both 
received  and  paid  interest.  The  merchant,  then  as 
now,  probably  had  a  good  deal  more  practical  sense 
than  the  theologian,  and  certainly  a  clearer  idea  of  the 
line  between  legitimate  interest  and  usury.  The  trou- 
ble is  that  historians,  up  to  a  late  date,  have  been 
influenced  by  the  ecclesiastical  attitude  toward  money 
lending.  They  are  exasperatingly  dogmatic  on  the 
things  they  admit  they  don't  know.  I  am  inclined  to 
suspect  that  it  was  not  the  early  Middle  Ages  that 
were  "dark"  but  only  the  historians.  I  am  even  dis- 
posed to  agree  with  my  friend  Dr.  James  J.  Walsh 
that,  in  point  of  real  civilization  and  attainment,  both 
artistic  and  literary,  the  thirteenth  century  in  Europe 
compares  favorably  with  our  own.  And  even  he  has 
been  unable  to  elicit  anything  of  real  usefulness  about 
the  mechanics  of  commerce. 

And  if  this  is  the  sum  of  our  knowledge  of  the  his- 


SOME  DEFECTS  OF  HISTORY        169 

Socialism's  False  Assumption 

tory  of  the  most  vital  part  of  human  affairs,  the  history 
of  the  men  who  paid  the  taxes  and  the  men  who  made 
the  taxes  possible;  the  history  of  those  who  took  the 
bare  product  of  labor  and  fructified  it  tenfold — how 
difficult  is  it  for  us  to  gather  together  enough  particu- 
lars to  frame  a  trustworthy  generalization  from  the 
wholly  modern  tabulation  of  the  records  of  trade, 
industry  and  finance!  There  has  recently  been  pub- 
lished a  book  by  H.  G.  Wells,  The  Outline  of  His- 
tory, which  at  least  has  had  the  excellent  effect  of 
persuading  a  number  of  people  to  read  history  who 
have  done  little  serious  reading  in  the  course  of  their 
lives.  But  that  "outline"  is  devoted  to  proving  a 
fallacious  assumption — that  men  are  groping  their 
way,  rather  blindly,  in  the  direction  of  international 
socialism.  Is  there  one  single  record  in  all  the  inade- 
quate volumes  of  history,  upon  which  Mr.  Wells  and 
we  ourselves  necessarily  depend,  which  indicates  any- 
thing of  the  kind?  Everything  points  to  the  develop- 
ment of  the  efficient  individual.  There  is  nothing  in 
the  Wells  inference  which  does  not  ignore  the  factor 
of  management  in  production,  dominant  now  and  dom- 
inant always,  from  the  time  when  man  learned  to  save 
something  out  of  his  harvest,  to  keep  himself  and 
others  through  the  coming  winter,  and  exchange  for 
what  he  could  not  produce. 

A  Sound  and  Conservative  Forecast 

With  regard  to  the  use  of  the  barometer  in  the  turn 
of  the  market  in  1909,  The  Wall  Street  Journal  on 


170    THE  STOCK  MARKET  BAROMETER 

September  nth,  a  month  after  the  railroads  had  re- 
corded their  high,  said: 

"The  movement  of  the  average  on  Thursday's  break  was  one 
which  has  often  marked  the  commencement  of  a  downward 
swing.  The  indication  as  yet  is  not  very  authoritative,  but 
whatever  we  may  think  about  a  resumption  of  the  bull  move- 
ment, 'now  that  all  the  bad  news  is  out,'  the  averages  un- 
doubtedly look  more  bearish  than  they  have  done  in  a  long 
period. 

"Pessimism  has  never  been  the  policy  of  this  paper,  but 
it  published  an  earnest  plea  for  conservatism  when  the  market 
was  at  the  top.  Nothing  has  occurred  since  which  has  not 
emphasized  the  position  taken." 

From  that  time  forward,  although  the  market,  as 
we  have  seen,  was  remarkably  firm,  showing  only 
modified  secondary  downward  swings  practically  up 
to  the  end  of  the  year,  The  Wall  Street  Journal  con- 
tinued to  draw  lessons  of  warning  from  the  averages. 
On  October  28th  it  said,  after  pointing  out  the  extent 
of  the  rally  necessary  to  re-establish  the  old  bull 
market : 

"There  is  no  pretense  here  to  pass  an  opinion  upon  the  market 
from  any  other  point  of  view  than  a  purely  technical  one,  based 
upon  the  experience  of  the  price  movements  as  shown  in  the 
average  record  of  many  years,  but  the  depression  in  the  bar- 
ometer, here  evidenced,  is  well  worthy  of  the  consideration  of 
thoughtful  traders." 

Growing  Effectiveness  of  the  Barometer 

Remarking  how  widely  the  idea  of  a  bull  market  in 
1910  was  then  held  The  Wall  Street  Journal  was 


SOME  DEFECTS  OF  HISTORY        171 

unpopularly  bearish  on  December  18,  1909,  although 
both  averages  were  within  a  very  few  points  of  the 
top.  It  is  interesting  to  note  that  one  of  the  bear 
arguments  (other  than  that  of  the  averages)  discussed 
at  that  time  was  the  high  cost  of  living !  On  Decem- 
ber 28th,  any  idea  of  a  January  boom — a  movement 
always  talked  of  at  the  beginning  of  the  year— was 
rather  cruelly  discouraged.  It  would  be  easy  to  mul- 
tiply examples.  It  is  sufficient  here  to  show,  before 
taking  up  the  discussion  of  the  four  years  of  some- 
what indecisive  market  movements  which  preceded  the 
war,  how  faithfully  the  stock  market  barometer, 
twelve  years  ago,  was  already  serving  its  purpose. 


I 


Chapter  XV 
A  "LINE"  AND  AN  EXAMPLE — 1914 

N  past  discussions  of  the  stock  market  barometer — 
the  record  by  daily  averages  of  the  closing  "bid" 
prices  of  a  number  of  selected  industrial  and  railroad 
stocks,  taken  in  two  separate  groups  to  check  and  con- 
firm each  other — emphasis  has  been  laid  upon  what 
is  called  a  "line."  It  is  needless  to  say  that  no  infer- 
ence of  value  can  be  drawn  from  a  single  day's  trad- 
ing. However  large  the  transactions  may  be,  they 
cannot  show  the  general  trend.  This  daily  fluctuation 
is  merely  the  third  and  least  important  movement 
defined  in  Dow's  theory  of  the  averages.  If  we  could 
imagine  such  a  thing  as  an  irregular  daily  tidal  move- 
ment it  is  just  that.  The  general  level  of  the  sea  is 
not  changed  by  an  abnormally  high  tide  in  the  Bay  of 
Fundy  or  a  tidal  bore  in  the  mouth  of  some  Chinese 
river.  The  ocean's  real  encroachments  and  recessions 
take  time. 

A  Definition 

The  line,  therefore,  may  be  considered  as  often 
preceding  an  appreciable  recovery  in  a  primary  bear 
market  or  a  well-defined  reaction  in  a  primary  bull 
market,  and,  rarely,  as  the  possible  turning  of  a  major 
movement.  It  can  almost  be  set  down  as  axiomatic 
for  all  our  purposes  that  a  line  is  and  must  necessarily 


A  "LINE"  AND  AN  EXAMPLE— 1914    173 

be  either  one  of  accumulation  or  one  of  distribution. 
For  a  time  the  buying  and  selling  power  are  in  equi- 
librium. There  are  some  most  significant  lines  in  the 
history  of  the  averages  to  which  reference  has  already 
been  made. 

Predicting/  the  War 

To  show  the  special  value  of  the  averages  as  a 
barometer  forecasting  what  even  Wall  Street  itself 
does  not  know  in  any  general  sense  or  at  any  rate 
does  not  realize,  the  extraordinary  line  made  by  both 
averages,  industrials  and  railroads,  in  the  months  of 
May,  June  and  July,  1914,  preceding  the  outbreak  of 
the  Great  War,  is  here  submitted.  No  severer  test 
of  the  averages  could  be  chosen.  The  war  came  as 
a  surprise  to  the  whole  world.  Did  the  stock  market 
foresee  it?  It  may  be  fairly  claimed  that  it  did,  and 
had  predicted  it,  or  trouble  of  the  most  momentous 
character,  before  the  end  of  July,  while  the  German 
army  crossed  into  Belgium  on  August  3d— 4th. 

Let  it  be  remembered  that  a  primary  bear  move- 
ment had  then  been  in  progress  in  the  stock  market 
since  October,  1912.  In  May,  1914,  both  averages 
started  to  make  a  line  of  unusual  length.  The  fluctu- 
ations in  the  railroads  were  between  one  hundred  and 
three  and  one  hundred  and  one,  and  in  the  industrial 
between  eighty-one  and  seventy-nine.  Only  once,  or 
June  25th,  did  the  railroads  give  a  warning  at  one 
hundred.  This  was  taken  back  the  following  day  with 
a  continuance  of  the  line  in  both  averages  up  to  July 


174    THE  STOCK  MARKET  BAROMETER 

1 8th  in  the  case  of  the  railroads  and  July  27th  in  the 
case  of  the  industrials.  At  the  latter  date,  eight  days 
before  the  German  army  invaded  Belgium,  the  indus- 
trials confirmed  the  warning  the  railroads  had  given. 

Definition  of  a  "Line" 

The  accompanying  figure  chart,  taken  from  May 
I,  1914,  to  July  3Oth,  answers  many  questions.  The 
line,  like  others  recorded  in  the  averages,  was  presum- 
ably one  of  accumulation  or  distribution.  At  the  end 
of  April  the  bear  market  had  continued  for  nineteen 
months,  and  there  is  fair  conjecture  that  had  there 
been  no  war  this  would  have  proved  a  line  of  accumu- 
lation, followed  by  the  bull  market  which  actually 
started  in  the  ensuing  December,  soon  after  the  Stock 
Exchange  reopened  for  business. 

This  chart  answers  also  the  questions  as  to  the 
dimensions  or  breadth  of  a  line,  which,  of  course,  in 
theory  may  be  prolonged  indefinitely  and  in  this  in- 
stance had  actually  extended  over  sixty-six  trading 
days  in  the  industrials  and  seventy-one  in  the  railroads. 
It  will  be  seen  that  three  points  was  the  extreme  range 
in  the  industrials  and  four  points  that  in  the  more 
stable  railroad  stocks.  The  line  proved  to  have  been 
one  of  distribution,  and  indeed  the  market  had  become 
so  saturated  with  stocks  that  the  Stock  Exchange 
closed  its  doors  for  the  first  time  since  the  gold  panic 
of  1873. 


AVERAGES  FROM  MAY  i,  1914 
TO  CLOSING  OF  THE  STOCK  EXCHANGE 

Each  figure  represents  the  average  closing  bid  price  of  twenty  railroad  stocks  and 
twelve  industrial  stocks,  and  a  complete  trading  day. 

RAILROADS 

^ MAY , 


103  103  103  103  103  103  103  103  103  103 

IO2  102  IO2  IO2  IO2  IO2  IO2  IO2  IO2  IO2      IO2  IO2  IO2 

IOI  101  IOI 


-JUNE 


-JULY- 


103 

102  I O2  102  102  102  102 

IOI  IOI   IOI   IOI 

100  100  100  100 


98  98  98 

97  97  97 
96 

• « 

•  •     94 
93 
INDUSTRIALS 


-MAY- 


SI  81   Si  81  81  81  81  Si  Si  Si  81 

80                   80  80  80  80         80  80  80 

79  79  79  79  79  79  79 

JUNE • > 

81  81  81  Si  81  Si  81  81  81  Si  81  81  81  Si  Si  81  81 

80  80                                         80  80  80  80  80 

79 


JULY 


81  81  81  81  81  81  81  81 
80  80  80  80  80  80  80  80  80  80  80 

79    79    79 


76    76 


176     THE  STOCK  MARKET  BAROMETER 
What  Had  Happened? 

What  had  happened?  German  holders  of  Amer- 
ican stocks  and  the  best  informed  European  bankers 
had  sold  in  this  market.  If  there  had  been  no  war  all 
this  would  have  been  absorbed  by  the  American  in- 
vestor at  the  unrepresentative  low  prices  prevailing 
in  a  bear  market  which  in  July,  1914,  had  been  oper- 
ative for  twenty-two  months.  All  of  it  was  absorbed 
by  the  American  investor  in  the  following  year.  The 
supply  from  Europe  then,  and  subsequently,  as  the 
war  forced  foreign  holders  to  realize,  and  war  loans 
compelled  the  liquidation  of  other  investments,  took 
the  place  of  the  normal  supply  of  new  investment 
securities  which  it  is  the  duty  of  Wall  Street  to  create 
through  concentration  of  opportunity  and  of  savings 
and  the  bringing  of  the  two  things  together.  Over- 
regulation  of  the  railroads,  now  recognized  to  have 
been  an  economic  crime,  had  paralyzed  their  power 
to  create  new  capital  long  before  the  war.  The  public 
attention  had  been  diverted  for  five  years  before  that 
calamity  to  industrial  opportunity,  some  of  it,  like  the 
shady  oil  promotions  of  our  inflation  period,  of  a 
dangerously  speculative  character.  Without  the  for- 
eign sales  of  American  securities  and  the  war,  turning 
us  in  effect  from  a  debtor  to  a  creditor  nation,  there 
would  have  been  a  dearth  of  capital  opportunity;  and 
this  is  why  after  the  all-revealing  break  late  in  July 
the  market  made  only  a  relatively  small  decline  on  the 
reopening  of  the  Stock  Exchange,  in  December,  imme- 
diately swinging  into  one  of  its  great  bull  periods. 


A  "LINE"  AND  AN  EXAMPLE— 1914     177 

Relation  to  Volume 

Knowledge  is  valuable  not  merely  for  telling  us 
what  to  do  but  for  telling  us  what  to  avoid.  Inside 
information,  so  called,  is  a  dangerous  commodity  in 
Wall  Street,  especially  if  you  trade  upon  it,  but  at 
least  it  guards  you  against  the  rumors  which  cannot 
possibly  be  so.  Diligent  study  of  the  averages  will 
sufficiently  show  where  a  "line,"  having  proved  to  be 
one  of  accumulation,  has  given  definite  information, 
not  merely  useful  to  the  trader  but  valuable  to  those 
who  look  upon  the  stock  market  as  a  means  of  fore- 
casting the  trend  of  the  country's  general  business. 

Here  is  an  appropriate  opportunity  for  adding 
something  about  volume  of  sales.  This  volume  is 
much  less  significant  than  is  generally  supposed.  It  is 
purely  relative,  and  what  would  be  a  large  volume  in 
one  state  of  the  market  supply  might  well  be  negligible 
in  a  greatly  active  market.  If  the  line  means  absorp- 
tion, this  aosorption  sums  up  the  market  supply, 
whether  it  be  three  hundred  thousand  shares  or  three 
million.  Showers  of  rain  vary  in  intensity,  area  and 
duration.  But  they  all  result  from  the  moisture  in 
the  air  reaching  saturation  point.  Rain  is  rain  whether 
it  covers  a  county  or  a  state,  in  five  hours  or  five  days. 

How  to  Know  a  Bull  Market 

It  might  well  be  asked,  how  are  we  to  tell  when  a 
secondary  swing,  upward  for  instance,  has  developed 
into  a  primary  bull  market?  The  result  is  seen  in 


178     THE  STOCK  MARKET  BAROMETER 

the  averages  in  a  succession  of  zig-zag  steps.  If  the 
secondary  swing  reacts  a  little  after  what  would  ordi- 
narily be  its  culmination  in  a  primary  bear  market 
but  does  not  decline  to  the  old  low  figures,  and  sub- 
sequently recovers  to  points  better  than  the  new  high 
established  on  the  earlier  rally,  we  may  assume  with 
confidence  that  a  primary  bull  market  of  indefinite 
length  has  been  established.  It  is,  of  course,  impos- 
sible for  the  barometer  to  predict  the  duration  of  the 
movement,  any  more  than  the  aneroid  can  tell  us  on 
October  3<Dth  what  the  weather  will  be  on  Election 
Day. 

Barometrical  Limitations 

There  is  no  need  to  expect  omniscience  from  an 
aneroid  barometer,  which,  as  we  know,  frequently 
takes  back  its  predictions  and  would  be  a  most  untrust- 
worthy guide  for  the  mariner  if  it  did  not.  This  is 
true  of  the  stock  market  barometer,  which  must  be 
intelligently  read.  Surgeons  and  physicians  in  our 
time  have  been  greatly  helped,  to  the  lasting  advan- 
tage of  human  life  and  comfort,  by  the  X-ray  photo- 
graph. But  these  medical  men  will  tell  you  that  the 
photograph  itself  must  be  read  by  an  expert;  that  to 
the  mere  general  practitioner  not  accustomed  to  its 
frequent  use  it  may  be  unintelligible  or  misleading. 
The  results  of  an  X-ray  to  disclose,  for  instance, 
pyorrhea  "pockets"  at  the  roots  of  the  teeth  would 
be  meaningless  to  the  layman  and  perhaps  even  to 
some  dentists.  But  any  dentist  could  qualify  himself 


A  "LINE"  AND  AN  EXAMPLE— 1914     179 

to  read  those  indications,  and  it  is  here  submitted  that 
any  intelligent  layman  with  a  sympathetic  interest  in 
the  stock  market  movement,  by  no  means  necessarily 
speculative,  can  read  the  stock  market  barometer. 

Speculation's  Necessity  and  Function 

Wall  Street  is  a  mystery  to  many  men  who  have 
unsuccessfully  tried  to  speculate  there  without  knowl- 
edge, only  to  become  convinced  that  they  have  in  some 
way  been  cheated  in  what  is  no  better  than  a  gambling 
game.  It  has  not  been  the  purpose  of  these  chapters 
to  discuss  ethical  questions;  as,  for  instance,  the  mo- 
rality of  speculation  or  the  line  which  divides  specula- 
tion from  gambling,  or  the  place  of  gambling  in  the 
Ten  Commandments,  or  the  supposed  special  sinfulness 
of  short  selling.  The  personal  opinion  of  the  writer 
is  that  speculation  within  a  man's  means  is  unaffected 
by  any  question  of  morality.  Perhaps  this  is  only 
another  way  of  saying  that  its  morality  is  taken  for 
granted,  just  as  the  lawful  conduct  of  a  man's  business 
is  assumed.  If  the  man  chooses  to  make  speculation 
his  business,  or  part  of  his  business,  the  ethical  question 
becomes  purely  academic.  Speculation  is  one  of  the 
greatest  essentials  in  the  development  of  a  nation.  The 
spirit  which  inspires  it  can  be  called  by  prettier  names, 
like  adventure  and  enterprise.  Certainly  if  no  one  had 
been  willing  to  take  a  speculative  risk  for  a  larger 
profit  than  mere  investment  provided  the  railroads  of 
the  United  States  would  have  stopped  at  the  eastern 
foothills  of  the  Alleghenies,  and  what  the  maps  of 


i8o    THE  STOCK  MARKET  BAROMETER 

our  childhood  called  "the  great  American  desert," 
now  our  great  wheat  and  corn-producing  states,  would 
have  remained  a  desert  for  all  we  knew  to  the  contrary. 
Rudyard  Kipling  once  said  that  if  the  British  army 
had  always  waited  for  supports  the  British  Empire 
would  have  stopped  at  Margate  beach.  The  specu- 
lator in  the  stock  market,  or  any  free  market,  is  a  fact 
and  not  a  theory.  He  is  the  embryo  investor  who  does 
not  wait  for  supports.  It  will  be  a  bad  day  for  this 
country,  and  a  sign  that  having  ceased  to  grow  it  has 
begun  to  dwindle,  when  it  abandons  free  markets  and 
the  free  speculation  which  they  necessarily  entail. 

Difficult  But  Not  Unfair 

It  is  not  true  to  say  that  the  outside  speculator  al- 
ways loses  money  in  Wall  Street  if  he  continues  specu- 
lating long  enough,  as  the  present  writer  (who  does 
not  trade  on  margin  himself)  can  testify  from  numer- 
ous instances  to  the  contrary.  But  the  man  who  means 
to  hold  his  own  in  an  encounter  requiring  capital, 
courage,  judgment,  caution,  and  arduously  acquired 
information  from  study  must  devote  the  same  atten- 
tion to  that  business  that  he  would  to  any  other  busi- 
ness. So  far  as  Wall  Street  is  concerned,  the  simile 
of  a  game  of  chance  is  always  a  bad  and  misleading 
one.  But  it  may  be  said  that  to  those  who  will  not  or 
cannot  comply  with  the  conditions  of  the  game  when 
playing  against  expert  exponents  of  it,  trading  in  Wall 
Street  is  a  sheer  gamble,  with  a  deadly  percentage  in 
favor  of  the  dealer  (who  does  not  need  to  be  di»- 


A  "LINE"  AND  AN  EXAMPLE— 1914     181 

honest)  and  against  such  a  player.  No  one  would 
play  auction  bridge  against  scientific  players  without 
learning  how  to  bid  and  how  to  draw  correct  infer- 
ences in  the  play.  He  would  refrain,  if  only  out  of 
mercy  for  his  prospective  partner.  But  the  man  who 
will  not  risk  his  own  and  his  partner's  money  in  that 
way  will  not  hesitate  to  speculate  in  Wall  Street.  Is 
it  surprising  that  he  loses  his  money? 

Who  Makes  the  Market? 

This  seems  an  appropriate  place  to  answer  a  ques- 
tion which  may  be  said  to  go  to  the  root  of  the  matter. 
"Who  makes  the  market?"  The  manipulators?  The 
great  banking  houses  of  issue  with  new  securities  to 
float?  The  professional  traders  on  the  floor  of  the 
Stock  Exchange?  The  large  individual  "operators" 
who  talk  to  newspaper  reporters  of  their  profits  and 
tell  Congressional  committees  how  they  made  them, 
but  never  say  a  word  about  their  losses?  Certainly 
not.  The  market  is  made  by  the  saving,  investing 
public  of  the  whole  United  States,  first,  last  and  all 
the  time.  There  is  no  possible  financial  combination 
which  can  manipulate  a  bull  market,  by  propaganda 
or  in  any  other  way,  when  the  combined  intelligence 
of  the  investing  public  sees  that  it  is  time  to  curtail 
their  commitments  in  view  of  a  coming  decline  in 
prices,  earnings  and  the  volume  of  trade.  The  most 
an  expert  manipulator  can  do  is  to  stimulate  activity 
in  a  particular  stock,  or  a  small  group  in  a  market 
which  is  already  rising  on  its  merits,  with  the  approval 


1 82     THE  STOCK  MARKET  BAROMETER 

of  public  sentiment.  We  hear  about  the  successful 
manipulation  of  the  market,  in  United  States  Steel 
or  Amalgamated  Copper,  by  the  late  James  R.  Keene 
in  1901  and  1902;  but  we  hear  nothing  of  almost 
innumerable  attempts  to  manipulate  for  distribution 
abandoned  because  the  general  trend  of  the  market 
made  the  operation  profitless  and  dangerous.  The 
great  private  financing  houses  are  normally  sellers  of 
securities  because  it  is  their  business  to  manufacture 
them,  in  the  promotion  of  new  enterprises,  and  the 
direction  of  the  great  reservoir  of  public  capital  into 
such  channels.  Individual  Wall  Street  capitalists  buy 
for  private  investment,  and  I  could  tell,  from  the 
wills  filed  for  probate,  of  the  unbelievable  minor  errors 
of  judgment  of  this  kind  made  by  men  so  well  informed 
as  the  late  J.  Pierpont  Morgan  or  the  late  E.  H. 
Harriman,  to  name  only  two  of  many. 

Speculation's  Sound  Basis 

It  has  been  said  before  that  the  stock  market  rep- 
resents, in  a  crystallized  form,  the  aggregate  of  all 
America  knows  about  its  own  business,  and,  inciden- 
tally, about  the  business  of  its  neighbors.  When  a 
man  finds  his  jobbing  trade  or  his  factory  showing 
a  surplus  he  tends  to  invest  that  surplus  in  easily  nego- 
tiable securities.  If  this  improvement  is  general  it  is 
all  reflected  and  anticipated  in  the  market,  for  he  can 
buy  in  July  and  carry  on  ample  margin  what  he  knows 
he  can  pay  for  outright  when  he  divides  profits  at  the 
end  of  the  year.  He  does  not  wait  till  the  end  of  the 


A  "LINE"  AND  AN  EXAMPLE— 1914     183 

year,  because  he  realizes  that  the  knowledge  he  pos- 
sesses in  July  will  by  that  time  have  become  common 
property,  and  will  have  been  discounted  in  the  price. 
He  buys  ahead  just  as  he  buys  the  raw  materials  for 
his  factory  ahead,  at  a  time  when  the  securities  or  the 
raw  materials  look  cheap.  It  is  important  to  note 
that  this  is,  in  the  very  best  sense,  sentiment,  which 
comes  from  the  Latin  verb  sentire — "to  perceive  by 
the  senses  and  the  mind,  to  feel,  to  think."  This  is 
anything  but  sentimentalism,  which  is  not  encouraged 
in  Wall  Street. 

Sentiment 

Wall  Street  knows  what  sentiment  is.  It  is  a  thing 
of  high  emprise,  of  adventure,  of  noble  effort  to  a 
worthy  end.  It  carried  Boone  across  the  Appala- 
chians, and  the  Argonauts  of  1849  through  the  passes 
of  the  Rocky  Mountains.  It  is  something  we  inherit 
from  our  forefathers  of  Shakespeare's  time.  It  is 
what  they  brought  with  them  when  they  put  out  upon 
the  trackless  sea,  defying  the  galleons  of  Spain,  and 
named  a  plantation  on  an  unknown  continent  after 
their  Virgin  Queen.  Virginia  is  still  here  but,  as 
Austin  Dobson  sings,  and  Admiral  Dewey  might  have 
asked,  where  are  the  galleons  of  Spain?  This  senti- 
ment is  a  life-giving  principle  in  national  growth,  not 
to  be  confused  with  sentimental  statutes  for  "an  offi- 
cial state  flower,"  with  "smile  weeks"  and  slop-over 
"mothers'  days."  In  the  English-speaking  race  it  is 
a  perception  which  greatly  survives  for  great  occa- 


1 84    THE  STOCK  MARKET  BAROMETER 

sions.  It  was  sentiment  which  first  gave  a  kingly 
funeral,  and  a  memorial  stone  in  Westminster  Abbey, 
to  the  Unknown  Soldier  who  had  saved  the  race.  It 
was  sentiment  which  made  all  London  still  its  voice 
and  hold  its  breath,  one  year,  to  the  minute,  after  the 
declaration  of  the  armistice.  I  spent  those  exalted 
two  minutes  at  the  Mansion  House  Corner,  in  the  City 
of  London,  in  November,  1919.  It  was  a  moving 
sight,  indeed,  when  it  could  bring  tears  to  the  eyes 
of  the  hardened  newspaper  reporter. 

A  great  price  movement  is  not  the  ordained  out- 
come of  enlightened  individual  choice,  or  even  of 
individual  leadership.  It  is  a  thing  far  greater  and 
more  impressive,  at  least  to  one  who  has  learned,  from 
personal  contact,  in  Wall  Street  and  out, 

"How  very  weak  the  very  wise, 
How  very  small  the  very  great  are." 


Chapter  XVI 

AN  EXCEPTION  TO  PROVE  THE  RULE 

A  PROVERB  has  been  called  the  wisdom  of  many 
and  the  wit  of  one.  Sometimes,  when  the 
controversialist  finds  the  proverb  inconvenient,  he  calls 
it  a  glittering  generality  or  a  truism.  A  French  phil- 
osopher told  us  that  all  generalizations  are  fallacious, 
"including  this  one."  But  a  truism  is  presumably  true, 
even  if  it  is  trite.  It  is  said  that  there  is  no  rule  with- 
out an  exception,  but  as  a  sufficient  number  of  excep- 
tions would  make  it  necessary  to  formulate  a  new  rule, 
especially  in  economics,  the  proverb  which  best  suits 
our  purpose  is  that  which  says  that  the  exception 
proves  the  rule,  although  Coke's  "Exceptio  probat 
regulam  de  rebus  exceptis"  is  not  what  we  want.  But 
the  proverb  is  even  startlingly  true  about  what  may  be 
called  the  great  exception  in  the  stock  market  averages. 
Our  two  averages  of  railroad  and  industrial  stocks 
must  confirm  each  other  to  give  weight  to  any  infer- 
ence drawn  from  the  price  movement.  The  history 
of  the  stock  market  as  shown  by  these  averages,  going 
back  many  years,  proves  conclusively  that  the  two 
averages  move  together.  But  there  was  one  excep- 
tion to  this  rule,  and  it  is  the  more  valuable  for  our 
purpose  in  that  it  is  the  exception  which  proves  the 
rule  we  have  set  up. 

185 


i86    THE  STOCK  MARKET  BAROMETER 

Some  Necessary  History 

It  adds  to  the  interest  of  the  study  of  this  subject 
that  it  is  necessary  to  make  excursions  into  contempo- 
rary history  to  explain  the  meaning  of  the  price  move- 
ment, often  only  fully  apparent  after  the  movement 
has  been  under  way  for  many  months.  In  1918,  for 
some  nine  months  after  we  had  entered  the  Great  War, 
both  averages  showed  a  primary  bull  market  with  a 
strong  secondary  reaction  over  the  end  of  that  year. 
During  that  year  the  railroad  stocks  fully  shared  that 
upward  swing  but  subsequently  sold  off,  making  almost 
a  bear  market  of  their  own  in  1919,  when  the  indus- 
trials were  strongest.  Letters  were  written  dur- 
ing the  serial  publication  of  these  discussions,  in 
which  this  well-known  fact  was  adduced  as  a  reason 
for  rejecting  the  entire  theory  based  upon  the  aver- 
ages. But  if  ever  an  exception  proved  the  rule  this 
one  does. 

Remember  that  the  industrial  and  railroad  stocks 
used  in  the  averages  are  essentially  speculative.  Only 
to  a  limited  extent  are  they  held  for  fixed  income  by 
people  to  whom  safety  of  the  principal  should  be  the 
main  consideration,  and  their  holders  are  constantly 
changing.  If  they  were  not  speculative  they  would  be 
useless  for  a  stock  market  barometer.  The  reason 
why  railroad  stocks  during  1919  did  not  share  the 
bull  market  in  the  industrials  was  that,  through  gov- 
ernment ownership  and  government  guaranty,  they 
had  in  a  real  sense  ceased,  for  the  time  at  least,  to  be 
speculative.  They  could  not  advance  in  any  market, 


MOVEMENT  OF   STOCK-MARKET  AVERAGES 


EXCEPTION  PROVES  THE  RULE      187 

bull  or  bear,  more  than  enough  to  discount  the  esti- 
mated value  of  that  guaranty. 

An  Impaired  Barometer 

Thus  for  a  year  or  more  the  averages  had  half 
their  usual  value  as  a  barometer,  or  indeed  less  than 
half,  for  the  movement  in  the  industrials  lacked  the 
essential  confirmation  of  a  corresponding  movement 
in  the  speculative  railroad  stocks.  It  is  made  clear 
by  the  accompanying  chart  that  during  that  period  the 
railroads  followed  not  the  speculative  market  but  the 
market  for  bonds.  They  had  nothing  to  expect  be- 
yond the  government  guaranty,  unless,  indeed,  far- 
sighted  holders  of  them  could  have  foreseen  the 
destruction  of  earning  capacity  resulting  from  the 
colossal  waste  of  government  ownership  and  its  sub- 
sequent collapse.  It  will  be  shown  that  the  railroad 
stocks  during  the  period  of  that  ownership  paralleled 
the  speculative  industrials  accidentally  and  for  differ- 
ent reasons,  only  so  far  as  to  discount  the  supposed 
value  of  a  government  guaranty;  relapsed,  and  recov- 
ered with  an  ensuing  price  movement  governed  essen- 
tially by  the  totally  different  conditions  which  are 
compelling  in  the  case  of  bonds. 

An  Important  Distinction 

There  is  some  need  to  point  out  here  the  essential 
difference  between  a  bond  and  a  stock.  The  stock  is  a 
partnership  obligation,  while  the  bond  is  a  debt,  a 


1 88     THE  STOCK  MARKET  BAROMETER 

mortgage,  a  liability  ranking  ahead  of  the  stock. 
The  stockholder  is  a  partner  in  the  business,  while  the 
bondholder  is  a  creditor  of  the  company.  The  bond- 
holder has  lent  the  concern  his  money  on  the  fixed 
assets,  such  as  the  railroad's  real  estate  or  the  manu- 
facturer's mills.  But  the  essence  of  the  bond  is  that  its 
speculative  feature  to  the  holder  is  subordinate,  or 
even  non-existent.  It  is  held  for  its  income  return. 
The  price  fluctuates  strictly  according  to  the  purchas- 
ing power  of  the  income.  The  price  of  the  bond  will 
be  high  when  the  necessaries  of  life  are  low,  and  the 
investment  bond  will  decline  in  price  as  the  cost  of 
necessaries  advances.  It  would  be  easy,  but  constantly 
misleading,  to  say  that  the  price  of  bonds  is  regulated 
by  the  value  of  money.  The  interest  rate  fluctuates 
from  day  to  day,  and  only  by  the  issue  terms  of  long- 
time bonds  can  we  get  any  idea  of  the  quotation  for 
money  over  a  long  period  of  years,  which  is  at  the 
best  an  estimate,  and  often  wrong. 

A  Definition  for  the  Layman 

It  is  simplest  to  say  that  the  price  of  securities  held 
for  fixed  income  is  in  inverse  ratio  to  the  cost  of 
living.  If  the  latter  is  high  the  price  of  bonds  or 
other  securities  held  for  fixed  income  will  be  low  and 
their  apparent  yield,  measured  in  dollars,  will  be  large. 
If  the  cost  of  living  is  low  the  price  of  securities  held 
for  fixed  income  will  be  high  and  the  apparent  income, 
represented  by  the  yield  in  dollars,  will  be  correspond- 
ingly less. 


EXCEPTION  PROVES  THE  RULE      189 

Effects  of  Government  Guaranty 

It  is  plain,  then,  that  with  a  government  guaranty 
of  a  minimum  return,  based  upon  the  average  earn- 
ings of  three  years  ended  June  30,  1917,  the  railroads 
entered  the  fixed  income  class.  If  they  had  continued 
speculative,  with  no  government  guaranty  and  no  gov- 
ernment ownership,  their  fluctuations  would  not  have 
been  governed  by  the  cost  of  living  but  by  their  earning 
capacity,  and  chiefly  by  their  prospective  earning  ca- 
pacity; for  it  cannot  be  too  often  repeated  that  the 
stock  market  is  not  reflecting  conditions  as  they  are 
to-day  but  conditions  as  far  ahead  as  the  combined 
intelligence  of  the  country  there  concentrated  can  fore- 
see them. 

Let  us  consider  the  history  of  the  war  period  as  it 
affected  the  railroad  stocks.  When  we  entered  the 
war,  in  the  spring  of  1917,  the  arrangement  between 
the  government  and  the  railroads  was  purely  tentative. 
So  far  as  the  stockholders  knew,  their  investments 
were  still  speculative,  and  these  followed  the  specu- 
lative trend.  It  was  not  until  late  on  the  day  after 
Christmas,  1917,  that  the  announcement  that  the  rail- 
roads would  be  definitely  taken  over  by  the  govern- 
ment was  made.  The  stock  market  had  not  time  to 
discount  the  new  ownership  on  that  day,  but  on  Uie 
following  day,  December  27th,  the  average  price  of 
the  twenty  active  railroad  stocks  closed  at  78.08 — an 
advance  of  no  less  than  6.41  points  from  the  closing 
prices  of  the  day  before.  For  not  more  than  two  days 
previously  was  the  idea  that  the  roads  would  be  per- 


190    THE  STOCK  MARKET  BAROMETER 

manently  taken  over  considered  seriously  in  the  Street, 
although  it  had  been  expected  for  some  time  past  that 
the  government  would  advance  the  money  for  maturing 
obligations  and  capital  improvements.  On  the  morn- 
ing of  the  day  of  the  announcement  one  of  the  New 
York  newspapers,  in  the  confidence  of  the  Wilson  Ad- 
ministration, had  a  story  to  the  effect  that  the  plan 
was  to  take  the  roads  over  for  a  compensation  based 
on  the  average  of  five  years'  net  earnings.  It  is  im- 
possible to  plumb  the  depths  of  Mr.  Wilson's  mind, 
but  this  new  ownership  was  assumed,  then  and  for 
long  afterwards,  to  be  permanent  government  owner- 
ship for  all  intents  and  purposes. 

How  the  Averages  Diverged 

From  the  accompanying  chart  it  will  be  seen  that 
in  the  rally  throughout  1918  from  the  bear  swing 
which  had  followed  the  first  bull  market  of  the  Great 
War — that  culminating  in  October,  1916 — the  rail- 
road averages  had  accompanied  the  industrials  in  a 
steady  advance.  But  from  the  time  when  the  fate 
of  the  stockholders  became  dominated  by  government 
management  and  guaranty  the  two  averages  parted 
company.  The  high  point  of  the  movement  in  rail- 
roads was  made  in  October,  1918,  while  the  bull 
market  in  the  industrial  stocks  did  not  culminate  until 
November,  1919.  Toward  midsummer  of  the  latter 
year  the  railroads  had  made  some  recovery,  after  a 
break  following  the  first  impetuous  buying  on  govern- 
ment guaranty.  But  from  that  point  they  steadily 


EXCEPTION  PROVES  THE  RULE      191 

declined  while  the  principal  advance  in  the  industrials 
was  made,  continuing  to  do  so  while  the  preliminary 
movement  of  the  great  decline  of  1920  was  in  prog- 
ress. In  1920  they  ran  counter  to  the  falling  indus- 
trials, on  the  way  up  actually  crossing  the  industrials 
on  the  way  down,  in  the  autumn  of  1920.  There  was 
simultaneously  a  confirmatory  recovery  in  bonds. 

The  Esch-Cummins  Act 

It  will  be  seen  that  the  decline  in  the  railroads  in 
1919  and  the  recovery  in  1920  virtually  paralleled  the 
movement  of  the  average  daily  prices  of  forty  repre- 
sentative bonds  in  those  years.  It  will  be  noticed  how 
closely  this  corresponded  to  the  inflation  and  subse- 
quent deflation  of  the  cost  of  living.  During  the  spring 
and  summer  of  1919,  while  Mr.  Wilson  was  absent 
in  Europe,  it  was  frequently  reported  that  he  was  dis- 
appointed with  the  unexpected  costliness  and  inefficiency 
of  government  ownership,  and  that  he  would  seek  an 
early  opportunity  for  a  return  of  the  railroads  to  their 
private  owners.  There  is  reason  to  believe  that  he 
did  expect,  or  at  least  hope,  to  return  them  about 
August  i,  1919,  anticipating  that  Congress  would  have 
passed  appropriate  legislation  by  that  time.  Con- 
gress was  working  on  the  Esch-Cummins  bill,  now 
called  the  Transportation  Act,  which  dragged  through 
the  summer  and  autumn  until,  on  November  i6th,  the 
House  of  Representatives  passed  the  measure.  It 
was  at  that  time,  or  early  in  December,  that  the  Presi- 
dent positively  declared  that  he  would  return  the  roads 


192    THE  STOCK  MARKET  BAROMETER 

on  January  ist.  But  the  Senate  did  not  pass  the  Esch- 
Cummins  bill  until  late  in  February,  1920;  so  that 
the  President  was  compelled  to  extend  the  limit  he 
had  fixed  by  two  months. 

Selling  "Ex-Control" 

But  more  than  nine  months  before,  in  May,  1919, 
when  the  railroad  average  was  making  the  first  figure 
of  a  "double  top,"  completed  in  July,  The  Wall  Street 
Journal  said  that  the  strength  of  these  stocks  in  the 
face  of  discouraging  reports  of  earnings  might  be  due 
to  the  fact  that  they  were  beginning  to  sell  "ex-con- 
trol." There  is  no  question  that  the  decline  from  the 
point  of  the  further  (July)  rally  to  the  early  low  of 
1920  was  due  to  the  appalling  damage  inflicted  by  gov- 
ernment ownership,  which  actually,  in  most  cases,  had 
raised  the  operating  cost  above  the  operating  revenue. 
The  principal  item,  wages,  had  been  advanced  beyond 
all  reason,  by  a  management  which  was  political  rather 
than  financial,  and  the  cost  of  everything  the  railroads 
consumed  had  been  multiplied.  The  war  administra- 
tion had  actually  bid  up  railroad  ties  in  Maine  against 
itself,  the  only  buyer,  from  thirty-seven  cents  each  to 
$1.40.  It  is  noteworthy  also  that  at  that  time  the  large 
but  absolutely  necessary  increase  in  rates  to  render  the 
railroads  self-supporting  under  private  operation  was 
only  being  discussed.  It  was  in  fact  not  granted  by 
the  Interstate  Commerce  Commission  until  the  time 
of  its  usefulness  had  passed. 


EXCEPTION  PROVES  THE  RULE      193 
A  Difference  of  Kind 

Federal  control  actually  ended  on  February  28, 
1920,  two  days  after  the  signing  of  the  Esch-Cum- 
mins  act,  which,  however,  extended  federal  compen- 
sation for  another  six  months,  created  the  Labor 
Board  and  gave  the  Interstate  Commerce  Commission 
the  6  per  cent  net  return  as  a  rule  of  rate-making. 
Rates  were  not  advanced  until  the  following  August, 
but  Wall  Street  knew  that  they  must  necessarily  be 
advanced,  and,  as  usual,  discounted  that  advantage 
as  far  ahead  as  it  could  see  it — in  this  case  nearly  six 
months. 

In  considering  the  effect  of  the  war  upon  business 
and  production  it  is  well  to  assure  ourselves  as  to  what 
extent  the  conditions  it  created  are  different,  in  kind 
or  only  in  degree,  from  those  following  other  wars. 
This  was  a  difference  in  kind.  Without  help  from 
other  quarters  the  industrial  stocks  made  a  bull  mar- 
ket off  their  own  bat — a  thing  they  had  never  done 
before.  Stress  is  laid  upon  this  fundamental  differ- 
ence here,  and  the  causes  which  created  it,  because 
unless  it  is  thoroughly  explained  and  grasped  it  is 
inevitable  that  teachers  and  students  of  the  future,  to 
whom  these  discussions  are  intended  to  appeal  quite 
as  much  as  to  the  readers  of  the  present,  will  become 
confused  and  discouraged,  in  the  face  of  what  might 
well  be  considered  irreconcilable  difficulties  and  dis- 
crepancies. Still  another  instance  will  be  furnished  of 
a  like  searching  test. 


194    THE  STOCK  MARKET  BAROMETER 
!//  Sense  of  Proportion — and  of  Humor 

There  is  no  need  for  us  to  fall  in  love  with  our 
theory  or  to  regard  it  in  the  false  perspective  of  the 
enthusiast  for  any  fad.  If  you  hold  a  silver  dollar  at 
arm's  length  you  can  see  it  in  its  correct  relation  to 
surrounding  objects.  If  you  bring  it  too  close  to  the 
eye  its  relation  to  those  objects  will  become  distorted 
and  exaggerated,  and  you  can  hold  it  so  close  that 
you  can  see  nothing  else.  Heaven  forbid  that  I  should 
attempt  to  found  a  school  of  economists  prepared  to 
die  for  the  thesis  that  the  world  wabbles  along  on  a 
theory  of  averages.  There  is  no  cry  here  for  disciples. 
We  can  forgive  a  great  deal  to  the  founder  of  a  school, 
but  we  can  seldom  forgive  the  school.  Let  us,  there- 
fore, hold  the  stock  market  barometer  at  such  a  read- 
able distance  from  the  eye  that  we  shall  not  consider 
the  barometer  more  important  than  the  weather  it 
predicts.  We  have  sound  theory  to  go  upon,  or  this 
and  the  preceding  chapters  have  been  written  in  vain. 
Don't  let  us  overwork  it,  as  so  many  statisticians  do. 
Scientists,  even  the  greatest,  are  inclined  to  worship 
their  hypotheses,  with  humiliating  results.  Herbert 
Spencer,  the  great  synthetic  philosopher,  once  said  to 
the  late  Professor  Huxley:  "You  may  hardly  believe 
it,  but  I,  myself,  wrote  the  beginning  and  at  least  the 
framework  of  a  tragedy."  "I  can  quite  believe  it," 
said  Huxley.  "I  know  the  plot.  It  was  how  a  per- 
fectly  beautiful  theory  was  murdered  by  an  ugly  little 
fact." 


EXCEPTION  PROVES  THE  RULE      195 
Our  Material  Is  Mostly  Modern 

Some  disappointment  has  been  expressed  that  Charles 
H.  Dow  said  so  little  that  was  definite  upon  his  own 
theory  of  the  market  movement,  or  was  able  to  draw 
so  few  of  the  inferences  which  were  implicit  in  that 
theory,  to  say  nothing  of  the  practical  and  useful 
truths  developed  from  its  application.  The  wonder  is 
that  he  got  so  far  with  the  scanty  materials  then  avail- 
able. In  the  latter  part  of  1902,  when  Dow  died,  but 
six  of  the  twenty  industrial  stocks  now  in  the  average 
were  in  the  average  then,  and  the  number  of  such 
stocks  used  was  only  twelve.  Ten  years  before,  it 
would  have  been  impossible  to  find  a  sufficient  number 
of  representative  and  consistently  active  industrial 
stocks  to  make  an  average  at  all.  The  old  averages, 
and  I  wish  I  were  able  to  show  examples  of  the  market 
movement  back  as  far  as  1860,  with  at  least  a  single 
average  for  fifteen  stocks,  had  not  the  advantage  of 
their  present  double  form.  We  see  how  vitally  im- 
portant it  is  to  have  two  averages  correcting  and  con- 
firming each  other.  But  when  McKinley  was  re-elected 
it  was  necessary  to  include  Western  Union  even  in  the 
railroad  averages,  for  lack  of  a  consistent  degree  of 
activity  in  a  sufficient  number  of  stocks.  We  need  not 
belittle  the  pioneers,  or  overpraise  them.  They  neces- 
sarily had  to  break  ground  for  themselves  and  im- 
provise their  own  tools,  while  we,  with  all  the 
benefit  of  their  experience,  only  too  often  turn  out 
work  which  is  certainly  less  creative  and  often  less 
sincere. 


Chapter  XVII 

ITS  GREATEST  VINDICATION — 1917 

IF  there  had  not  been  a  bear  market  in  stocks  in 
the  year  1917  it  is  probable  that  this  series  of  dis- 
cussions would  never  have  been  prepared.  I  should 
have  felt  that  inferences  from  the  sum  of  knowledge 
and  intelligence  represented  by  the  market  movement 
were  empiric,  or  based  upon  insufficient  premises.  I 
should  have  said  that  the  market  was,  for  some  incom- 
prehensible reason,  unable  to  look  beyond  the  borders 
of  the  United  States.  It  would  have  seemed  plain 
that  it  was  incapable  of  taking  a  sane  and  self-protec- 
tive view  of  international  affairs.  Its  findings  might 
have  been  worth  little  more  than  the  fluctuations  in 
turnips  at  the  crossroads  grocery,  for  our  chain  of 
reasoning  is  as  strong  as  its  weakest  link.  But  there 
was  a  major  bear  swing  from  October— November, 
1916,  until  December  of  the  following  year  which 
may  justly  be  called  the  barometer's  greatest  vindica- 
tion. 

Uncertainty  of  the  War  Outlook 

One  of  those  precipitate  critics  who  has  failed  to 
grasp  the  principle  so  constantly  repeated  in  these  dis- 
cussions— that  of  the  analyzed  triple  movement  of  the 
stock  market  and  its  bearing  upon  future  events — 
asked  why  the  market  in  the  year  1917  made  a  warn- 

196 


ITS  GREATEST  VINDICATION— 1917     197 

ing  major  bear  movement  although  business  charts 
continued  to  show  a  large  volume  of  practical  pros- 
perity, then  and  in  the  following  year;  while  Babson's 
familiar  black  area  of  good  business  was  never  once 
below  his  amended  line  of  growth,  from  the  latter  part 
of  1915  to  near  the  end  of  1920?  But  what  consti- 
tuted the  excess  volume  of  American  business  during 
the  earlier  war  years?  Was  it  not  making  supplies 
for  the  combatants?  Were  we  not  feeding  them  and 
arming  them,  and  taking  payment  in  I  O  U's?  Have 
we  not  many  billions  of  the  I  O  U's  outstanding,  some 
of  them  never  likely  to  be  paid? 

These  things  are  important  to  remember,  but  there 
was  a  specific  reason  why  there  was  a  bear  market  in 
1917,  apart  from  the  fact  that  the  stock  market  kept 
its  head,  and  did  not  treat  war  profits  as  a  complete 
offset  to  the  destruction  of  our  past  and  future  foreign 
customers.  For  the  whole  of  that  year  the  issue  of 
the  war  was  in  doubt.  The  sum  of  market  knowledge 
did  not  preclude  a  final  German  victory.  Not  until 
the  end  of  1917  did  the  stock  market  barometer  begin 
to  predict  that  the  allies  would  win.  The  bull  market 
which  was  born  in  December  of  that  year  anticipated 
the  armistice  by  eleven  months,  and  the  failure  of 
Germany's  last  tremendous  drive  by  six  months.  How- 
ever bravely  we  believe  right  must  triumph,  the  wish, 
in  1917,  was  father  to  the  thought.  The  bear  mar- 
ket which  then  concluded  had  been  a  measure  of  in- 
surance. It  can  teach  little  to  those  who  cannot  dis- 
tinguish one  kind  of  "prosperity"  from  another.  It 
was  the  sanest  of  all  stock  market  movements.  It 


198     THE  STOCK  MARKET  BAROMETER 

offers  a  demonstration  of  the  market's  vision  higher 
than  anything  we  have  previously  analyzed. 

//  Germany  Had  Won 

Many  readers  must  have  asked  themselves  what 
would  have  happened  to  the  world  if  Germany  and 
her  allies  had  won.  Many  more  must  have  dismissed 
the  possibility  as  too  dreadful  to  contemplate.  Con- 
ditions are  bad  enough  now,  in  all  conscience.  But 
what  would  they  have  been  with  France  crushed,  Bel- 
gium enslaved,  Italy  in  $  state  of  anarchy,  Great 
Britain  ruined,  bankrupt  and  unable  to  feed  herself, 
with  her  merchant  marine  destroyed?  What  would 
have  been  the  burden  of  the  hundreds  of  billions  of 
ransom  Germany  would  have  laid  upon  the  world? 
How  should  we  have  liked  her  for  a  neighbor  in  the 
Caribbean?  There  has  been  a  disintegration  of 
nations,  or  perhaps  a  rebirth  of  nationalities  (some 
possibly  spurious),  which  has  produced  sufficiently 
grave  consequences.  But  what  would  have  happened 
to  the  world  if  the  British  Empire  had  been  brought 
to  irrecoverable  wreck? 

Such  a  possibility  might  well  daunt  the  staunchest 
heart,  but  the  stock  market  faced  it,  in  1917.  It  asked 
itself  exactly  these  questions.  Admiral  Sims  has  told 
us  since  how  desperate  was  the  condition  which  the 
allies  at  that  time  confidentially  admitted.  It  was  not 
until  the  end  of  that  year  that  our  assistance  became 
effective,  although  we  had  gone  to  war,  largely  un- 
prepared, in  the  spring.  The  stock  market  did  not 


ITS  GREATEST  VINDICATION— 1917     199 

know  then  (for  no  man  knew)  whether  we  should 
not  be  too  late.  There  was  little  question  that  we 
might  save  our  own  skins,  but  it  was  the  business  of 
the  market  to  insure  against  the  consequences  if  we 
failed  to  save  the  allies.  It  has  been  said,  in  an  earlier 
discussion,  that  the  stock  market  takes  into  account 
many  other  things  in  addition  to  those  chosen  for  tabu- 
lation and  analysis  by  the  most  complete  information 
bureau.  Honest  compilers  of  such  records  would  be 
the  last  to  contend  that  the  warning  movement  of  the 
stock  market  is  limited  in  its  application  to  a  mere 
reflection  of  the  coming  business  of  the  United  States 
only. 

Britain's  National  Debt 

It  will  be  highly  instructive  to  treat  in  another  dis- 
cussion of  the  quiet  years  of  contracted  business  which 
followed  the  bull  market  of  1908—9  and  preceded  the 
great  war  boom.  There  is  a  manifest  connection 
between  the  bear  market  before  the  war  and  an  event 
which,  nevertheless,  upset  all  calculations.  It  was  a 
thing  so  vast  that  even  now  we  are  at  a  loss  to  find 
precedents  in  history,  although  there  are  incomplete 
ones  following  the  long  quarter  of  a  century  of  war 
which  culminated  with  the  battle  of  Waterloo  in  1815. 
We  can  probably  get  a  better  parallel  there  than  some 
observers  have  supposed,  if  we  accept  length  as  to 
some  degree  offsetting  intensity,  and  take  the  relative 
size  of  the  conflicts  compared  with  population  and 
national  wealth.  There  is  one  significant  illustration 


200    THE  STOCK  MARKET  BAROMETER 

which  has  not  been  offered  elsewhere,  so  far  as  I  know. 
It  is  that  of  the  British  national  debt  after  the  immense 
losses  of  the  Napoleonic  wars.  Great  Britain's  debt 
at  that  time  (1815-16)  represented  3il/2  per  cent 
of  her  estimated  national  wealth.  Throughout  the 
greater  part  of  the  century,  and  during  the  long  reign 
of  Queen  Victoria,  the  debt  was  gradually  paid  off, 
until,  previous  to  the  Boer  War  (1899-1902)  it 
amounted  to  not  much  more  than  4  per  cent  of  the 
estimated  wealth. 

In  round  figures,  the  Boer  War  cost  Great  Britain 
about  a  billion  dollars,  and  raised  the  proportion  of 
debt  to  national  wealth  to  over  6  per  cent.  In  the 
years  between  1902  and  1914,  in  spite  of  the  steady 
increase  in  the  cost  of  living  and  the  growth  of  taxa- 
tion, the  British  national  debt  was  again  declining, 
although  it  did  not  reach  the  low  proportion  to  national 
wealth  of  1899.  The  British  debt  now  is  estimated 
at  33  per  cent  of  the  national  wealth,  or  a  proportion 
of  about  i  y2  per  cent  more  than  that  at  the  conclusion 
of  the  Napoleonic  wars,  which  had  lasted,  with  a 
three-year  interregnum,  from  1793  to  1815.  No  doubt 
it  is  a  formidably  high  proportion.  But  it  is  far  from 
a  hopeless  proportion;  and  this  is  a  basic  reason  why, 
of  all  the  money  units  depreciated  in  the  conflict,  the 
British  pound  sterling  approximates  respectably  in  ex- 
change credit  to  the  American  dollar. 

One  of  Our  Own  Liabilities 

In  1917  the  stock  market  was  asking  itself  what 
would  happen  to  the  pouad  sterling,  and  everything 


ITS  GREATEST  VINDICATION— 1917     201 

else,  if  Germany  won.  If  the  German  printing  presses 
are  working  overtime  to  turn  out  paper  marks,  what 
sort  of  currencies  would  the  allies  be  circulating  now 
had  the  German  drive  in  the  spring  of  1918  succeeded? 
We  have  satisfied  ourselves  by  analysis  that  the  essen- 
tial quality  of  the  stock  market  barometer  is  its  fore- 
sight. Could  there  have  been  a  more  striking  instance 
of  the  clarity  of  its  vision  than  that  salutary  bear  mar- 
ket, when  we  were  deceiving  ourselves  with  paper 
profits,  inflation  wages  and  inflation  prices?  In  1916 
we  had  placed  in  the  hands  of  the  labor  unions,  through 
the  Adamson  Act,  the  power  to  inflate  wages  without 
guaranty  of  any  corresponding  productive  return. 
Congress,  with  a  presidential  election  in  sight,  had 
tried  to  buy  votes,  lulling  the  American  consumer  and 
taxpayer,  who  were  to  pay  the  bill,  with  professions  of 
a  philanthropic  desire  to  inaugurate  shorter  hours  with 
consequent  greater  safety  for  the  railroad  traveler. 
Of  course  the  Adamson  Act  did  not  mean  shorter 
hours  but  only  earlier,  and  more,  overtime.  The 
hours  of  railroad  labor  were  actually  lengthened;  for 
it  was  made  strictly  to  the  interest  of  the  men,  up  to 
sixteen  hours,  to  stretch  their  day  to  the  legal  limit. 
We  know  now  what  the  demoralizing  effect  upon  other 
labor  was,  in  every  department  of  industry.  With 
such  a  precedent  no  wage  demand  was  too  preposterous 
after  our  own  entry  into  the  war,  early  in  1917,  had 
tied  our  hands.  There  was  hardly  a  single  manufac- 
turer in  the  country,  and  certainly  not  a  consumer,  who 
did  not  reap  the  deadly  consequences  of  that  humiliat- 
ing Congressional  surrender. 


202     THE  STOCK  MARKET  BAROMETER 


In  an  earlier  chapter,  that  on  "Water  in  the  Barom- 
eter," I  have  alluded  to  watered  labor  as  being  in- 
comparably more  deadly  than  watered  capital.  How 
many  billions  of  our  national  debt  might  not  have 
been  deducted,  as  never  incurred,  if  there  had  been  no 
such  dilution?  Mr.  -Piez,  director-general  of  the 
Emergency  Fleet  Corporation  during  the  war,  esti- 
mated that  the  efficiency  of  labor  had  been  dangerously 
reduced  through  smaller  individual  output  and  larger 
wages,  the  latter  only  excused  by  the  higher  prices  for 
commodities  of  which  those  wages  themselves  had 
been  the  automatic  cause.  He  said: 

"Labor  had  been  deliberately  slack  during  the  war.  In  the 
Atlantic  Coast  shipyards  workmen  received  $2  for  the  same  time 
that  a  year  ago  (1916)  brought  only  $i,  but  that  the  individual 
output  was  only  two-thirds  of  what  it  had  been  a  year  before." 

Guy  Morrison  Walker,  in  The  Things  That  Are 
Caesar's,  quoting  Director-General  Piez,  says  that 
the  unit  of  cost  production  during  our  share  in  the 
war  was  only  one-third  what  it  was  at  the  beginning 
of  hostilities.  Estimating  our  national  debt  at 
$24,000,000,000  and  deducting  from  it  all,  up  to 
$11,000,000,000,  owed  by  the  allied  nations  who  bor- 
rowed from  us,  there  remains  $13,000,000,000,  of 
which  a  large  part,  possibly  half,  constitutes  watered 
labor.  But  we  are  to  remember  that  in  the  advances 
to  the  allies,  which  were  made  not  in  cash  but  in  the 
necessaries  of  war,  of  which  labor  was  the  costliest 


ITS  GREATEST  VINDICATION— 1917     203 

item,  the  water  was  also  present  in  the  same  propor- 
tions. It  was  less  the  cash  wages  than  the  slacking, 
shirking  and  bad  work.  If  we  took  all  the  water 
which  has  ever  been  squeezed  out  of  corporation  capi- 
talization, by  the  remorseless  stock  market,  we  should 
not  have  a  sum  anything  nearly  approaching  the  shame- 
lessly watered  labor  upon  which  we  and  our  children 
and  our  children's  children  must  continue  to  pay  inter- 
est for  half  a  century  to  come. 

Paying  for  Bad  Work 

It  has  not  been  difficult  to  show  the  largely  nominal 
character  of  "water"  in  capitalization.  How  relatively 
seldom  has  it  represented  any  real  loss,  to  anybody, 
compared  with  the  irreparable  losses  from  watered 
labor!  How  unsatisfying  must  seem  the  industrial 
and  commercial  activity,  recorded  of  the  five  years  of 
the  war  in  graphic  statistical  tabulation,  when  we  have 
deducted  from  it  the  triple  price  for  that  prosperity 
for  which  from  henceforth  we  have  to  pay.  Everyone 
of  those  sham  dollars  must  be  met  in  real  dollars. 
Every  wasted  hour  of  bad  work  or  shirked  work  has 
to  be  paid  for  in  an  hour  of  good  work. 

Secondary  Inflation — And  After 

If  I  had  to  forecast  the  coming  major  bull  swing 
in  stocks,  and  the  area  of  a  possible  secondary  infla- 
tion, likely  to  be  much  less  than  that  of  the  war  but 
sufficiently  obvious,  I  would  compare  it  with  the  six 
vears  which  followed  the  battle  of  Waterloo  in  Great 


204    THE  STOCK  MARKET  BAROMETER 

Britain.  It  was  in  1821  that  the  Bank  of  England 
went  back  upon  a  gold  basis,  and  the  premium  upon 
gold  disappeared.  A  self-deluded  House  of  Commons 
admitted  in  1819  that  the  famous  Bullion  Report 
was  right,  and  that  fiat  money  was  wrong.  And  then 
followed  the  years  in  which  the  deflation  of  the  war 
levels  was  taken  in  hand  by  a  nation  in  which  every 
sixth  person  was  a  registered  pauper.  Dare  we  sup- 
pose that  we  shall  not  pay  our  relatively  lighter  bill 
in  some  such  way  as  this,  sooner  or  later?  It  is  less 
than  four  years  since  the  armistice.  The  bull  market 
in  progress  while  this  is  written  may  or  may  not  carry 
us  to  a  date  corresponding  to  that  of  1821  in  Europe. 
We  are  in  no  such  desperate  condition  as  Great  Britain 
was  then.  But  our  foreign  customers  have  an  almost 
incalculably  greater  reckoning  to  meet.  It  is  not  a 
problem  which  can  be  solved  by  quack  remedies.  It 
can,  indeed,  be  settled  only  by  throwing  the  quack 
remedies  out  of  the  window,  for  the  patient  has  been 
doped  to  the  danger  point. 

Unsuspected  Qualities  of  the  Barometer 

But  sufficient  unto  the  day  is  the  evil  thereof.  The 
stock  market  barometer  is  enough  for  our  purpose  in 
that  it  records,  well  in  advance,  the  periods  of  depres- 
sion and  prosperity  alike,  giving,  as  we  have  seen,  the 
signal  for  a  clear  track  ahead  and  the  warning  of 
danger.  The  averages  are  saying  now  that  general 
business  will  be  more  active  and  more  cheerful  in  the 
summer  of  1922.  The  barometer  does  not  profess 
to  predict  the  duration  of  such  prosperity,  although 


ITS  GREATEST  VINDICATION— 1917     205 

on  close  scrutiny  it  seems  to  give  tolerably  clear  indi- 
cations of  the  character  of  the  boom  or  depression 
which  it  forecasts.  The  business  depression  of  1908-9, 
predicted  by  the  bear  market  of  1907,  was  deep  rather 
than  long.  The  period  of  prosperity  of  the  latter  part 
of  1909  and  1910  was  more  extended  but  much  shal- 
lower ;  and  the  market  bull  movement  which  preceded 
it  was  also  slower  and  longer  than  the  bear  market, 
while  its  range  was  correspondingly  less.  This  is  strik- 
ingly true  of  the  narrower  later  fluctuations,  both  in 
business  and  in  the  stock  market,  with  the  latter  char- 
acteristically preceding  the  former.  It  was  only  in  the 
war  years  that  the  preceding  major  swings  of  the  stock 
market  became  as  vigorous  as  the  developments  in  our 
trade. 

It  is  also  noteworthy  that  during  those  quiet  years 
of  narrow  fluctuations  before  the  war  the  volume  of 
transactions  in  stocks,  as  shown  in  our  twenty-five-year 
chart,  contracted  also.  The  average  monthly  transac- 
tions compare  in  volume,  upon  the  whole,  rather  un- 
favorably with  those  preceding  the  re-election  of  Mc- 
Kinley  in  1900.  The  years  1911,  1912,  1913,  and 
1914  show  a  volume  of  trading  below  that  recorded 
in  the  years  1897,  1898,  1899,  and  1900;  and  the  year 
1899  made  a  better  showing  in  the  average  transac- 
tions than  any  one  of  the  later  years  here  taken  for 
comparison. 

Forecasting  the  War 

We  may  say,  therefore,  that  the  stock  market  does 
in  a  measure  foresee,  although  probably  in  a  way  not 


sufficiently  definite  to  be  of  much  practical  usefulness, 
the  character,  and  even  the  dimensions,  of  the  thing 
it  predicts.  One  thing  it  foresaw,  so  far  as  human 
knowledge  could,  was  the  war  itself.  Somebody  knew 
that  it  was  a  lively  possibility,  and  the  bear  market 
which  preceded  the  war  was  no  accident  or  mere  coinci- 
dence. It  will  be  remembered  that  in  the  latter  part 
of  1912  a  bear  movement  set  in,  of  decidedly  mild 
intensity  compared  with  most  of  the  bear  movements 
of  the  past  and  especially  those  to  which  we  have  given 
particular  consideration.  There  was  an  area  of  busi- 
ness depression  of  no  great  depth  in  1914  which  could 
be  offered  as  partly  convincing  justification  of  the  pre- 
ceding major  bear  swing.  But  there  can  be  little  doubt 
that  the  decline  was  also  influenced  by  liquidation  of 
stock  held  by  those  who  realized  the  dangerous  pos- 
sibilities in  the  German  attitude  toward  other  nations. 
This  must  have  started  somewhere  about  the  opening 
of  the  Kiel  Canal,  strategically  connecting  the  Baltic 
with  the  North  Sea  through  German  territory. 

It  may  be  justly  claimed  that  the  bear  market,  quite 
apart  from  predicting  a  contraction  in  business,  was 
also  discounting  the  possibilities  of  war.  In  a  previous 
study,  referring  to  the  line  of  distribution  made  in 
1914,  before  the  outbreak  of  hostilities,  it  was  shown 
that  foreign  liquidation  was  responsible  for  turning 
what  would  normally  have  been  a  line  of  accumulation 
into  a  line  of  distribution,  during  the  period  of  almost 
three  months  of  equilibrium  so  represented.  To  those 
who  profess  themselves  dissatisfied  that  the  major 
stock  market  movements  are  not  always  immediately 


ITS  GREATEST  VINDICATION— 1917     207 

adjustable  to  the  various  current  business  charts,  it 
may  be  said  that  the  fault  is  not  in  our  barometer. 
That  is  universal,  and  takes  note  of  international  facts 
where  those  tabulations  do  not.  If,  therefore,  they 
inadequately  confirm  our  deductions,  so  much  the  worse 
for  them.  We  have  found  that  the  more  severe  the 
test  we  apply  to  our  barometer  the  more  triumphantly 
does  it  vindicate  its  usefulness.  It  would  be  difficult 
to  overestimate  the  value  of  its  prescience  both  before 
the  war  and  in  the  course  of  the  conflict.  What  if 
the  war  had  come  at  the  top  of  a  bull  market? 


Chapter  XVIII 

WHAT  REGULATION  DID  TO  OUR  RAILROADS 

A  SWEEPING  assertion  requiring  no  qualification 
would  probably  be  one  of  two  things.  It  would 
be  an  axiom,  self-evident  and  containing  its  own  proof; 
as,  for  instance,  "the  sum  of  the  angles  of  any  triangle 
is  equal  to  two  right  angles."  Or  it  would  be  a  truism 
not  greatly  worth  stating.  I  have  said  in  previous 
necessary  criticism  that  tabulated  business  records, 
however  presented,  are  at  best  records,  and  only  in 
a  minor  degree  forecasts.  But  that  is  a  statement 
which  requires  at  least  some  qualification,  because  the 
youngest  but  most  scientific  of  our  business  records 
embodies  a  quality  of  forecast.  This  is  the  service  of 
Harvard  University's  Committee  on  Economic  Re- 
search. Its  index  chart  does  offer  a  method  of  fore- 
casting business,  for  the  good  reason  that  it  adapts 
the  idea  of  the  stock  market  barometer,  which  has 
been  in  successful  use  by  The  Wall  Street  Journal  and 
its  allied  publications  for  the  past  twenty  years. 

A  Chart  With  a  Forecast 

Those  familiar  with  the  Harvard  economic  service 
will  recollect  that  it  uses  three  lines  in  its  business  chart 
— a  line  of  speculation,  a  line  of  banking  and  a  line  of 
business.  It  commits  itself  to  no  floundering  attempt 

208 


REGULATION  AND  RAILROADS      209 

to  show  that  "action  and  reaction  are  equal."  Its 
service  dates  from  after  the  war;  but  it  publishes  a 
chart  from  1903  to  1914  inclusive,  which  is  a  most 
valuable  confirmation  of  what  has  been  here  laid  down 
in  the  discussion  of  the  stock  market  barometer.  Its 
line  of  speculation,  during  those  twelve  years,  uni- 
formly precedes  the  lines  of  business  and  banking.  In 
other  words  speculation  anticipates  the  developments 
of  business,  which  is  exactly  what  these  chapters  have 
been  directed  to  prove. 

The  Harvard  Committee  on  Economic  Research 
takes  the  average  stock  market  prices  for  its  line  of 
speculation.  It  recognizes  how  completely  the  war 
threw  many  such  calculations  out  of  gear  by  breaking 
up  the  very  foundations  upon  which  they  were  based. 
Harvard,  therefore,  does  not  publish  any  chart  of  the 
years  of  the  war.  I  find,  in  looking  back  over  my  rec- 
ords and  newspaper  comments,  that  conclusions  upon 
the  stock  market  movement  and  its  prophetic  relation 
to  the  business  of  the  country  were  dropped  almost 
entirely  for  the  same  reason.  We  have  seen  that  when 
the  government  took  over  the  railroads  on  a  guaranty 
we  had  remaining  merely  the  speculative  movement 
of  the  industrial  stocks,  without  any  corresponding 
movement  of  the  railroads  to  check  and  confirm  it. 
We  have  seen  also,  in  analyzing  the  war  period  which 
the  Harvard  service  not  unwisely  ignores,  that  the 
stock  market  did,  in  a  most  valuable  way,  act  as  best 
it  could  in  holding  before  the  public  mind  the  possi- 
bilities of  the  war  itself,  notably  in  the  bear  market  of 
1917,  and  that  it  also  foreshadowed  the  war  in  the 


210    THE  STOCK  MARKET  BAROMETER 

line  of  distribution  for  the  three  months  preceding  its 
outbreak. 

A  Movement  Greater   Than  the  Major  Swing 

But  there  is  another  indication  given  by  the  averages 
which,  while  of  the  greatest  importance  to-day,  has 
been  largely  unrecognized.  We  have  seen  that  the 
railroad  stocks,  where  there  was  a  free  market  for 
them,  in  the  years  under  private  ownership,  shared  the 
major  swings;  and  that  we  had  a  bull  market  cul- 
minating in  1909,  a  bear  market  determined  in  the 
following  year,  a  greatly  restricted  and  hesitating  bull 
market,  especially  in  the  railroad  stocks,  carrying  into 
the  latter  part  of  1912,  and  another  bear  market  cul- 
minating immediately  after  the  reopening  of  the  Stock 
Exchange  in  December,  1914,  following  eighteen 
weeks  of  war. 

There  is  a  historical  significance — a  lesson  and 
warning  of  the  very  first  importance — in  the  general 
trend  downward  of  the  prices  of  railroad  stocks  from 
1906  to  June,  1921.  This  is  a  movement  not  only 
wider  than  the  major  swings  but  even  more  consider- 
able than  any  of  these  assumed  cycle  periods  with 
which  a  previous  discussion  dealt.  It  has  extended 
nearly  sixteen  years.  It  is  not  only  likely  but  as  nearly 
certain  as  anything  merely  human  can  be,  that  the 
railroad  stocks  on  the  average  will  improve  in  the 
coming  year  1922.  But  there  is  a  radical  reason  why 
they  will  not,  in  any  near  period  of  time,  attain  the 
old  freedom  and  buoyancy  which  they  enjoyed  in  the 


REGULATION  AND  RAILROADS      211 

"x. 

later  lifetime  of  great  railroad  builders  like  James  J. 
Hill  and  Edward  H.  Harriman.  A  condition  for 
railroad  enterprise  has  been  established  which  has  not 
only  taken  much  of  the  speculative  value  out  of  the 
stocks  but  much  of  the  permanent  value  as  well.  It  is  a 
condition  which  has  left  the  railroads  themselves 
emasculated  and  weak,  with  their  virile  creative  power 
removed. 

Roosevelt  and  the  Railroads 

If  Theodore  Roosevelt  could  have  foreseen  the 
deadly  consequences  of  the  agitation  against  railroad 
corporations  which  he  inaugurated;  if  he  could  have 
realized  that  he  was  not  applying  temporary  checks 
to  temporary  evils,  that  his  policies,  so  called,  carried 
to  their  logical  conclusion,  would  cripple  railroad  en- 
terprise for  incalculable  years  to  come,  and  perhaps 
forever,  in  order  to  punish  a  few  who  had  abused  the 
power  which  necessarily  accrues  to  successful  enter- 
prise— we  may  be  sure  he  would  have  acted  far  other- 
wise. The  public  power  to  reform  has  been  construed, 
in  the  past  fourteen  years,  as  the  power  to  destroy. 
Railroad  development,  which  in  the  past  has  not  only 
accompanied  the  increase  in  population  but,  on  this 
continent  at  least,  has  preceded  it,  is  now  moribund  or 
dead.  No  new  capital  has  been  forthcoming  for  the 
greatly  needed  extension  of  railroad  facilities  to  parts 
of  the  country  that  do  not  enjoy  them,  to  say  nothing 
of  greater  terminal  facilities.  Lines  of  communica- 
tion are  the  very  arteries  of  civilization.  But  the 


adaptation  of  the  Roosevelt  theories — or  rather  the 
misconception  of  those  theories,  the  ascription  to  Theo- 
dore Roosevelt  of  ideas  he  never  held — has  resulted 
in  a  hardening  of  those  arteries,  in  a  weakening  of 
the  great  central  heart  which  pumps  the  lifeblood 
through  them. 

An  Arrested  Development 

We  can  see  the  fact  for  ourselves  in  the  mileage  of 
the  United  States  taken  contemporaneously  with  each 
ten-year  census.  If  we  had  two  hundred  and  forty 
thousand  eight  hundred  and  thirty  miles  of  railroad 
in  1910 — an  increase  of  nearly  25  per  cent  since  1900 
and  more  than  double  the  railroad  mileage  in  1 8 So—- 
we should  have  had  a  continuing  increase,  shown  in 
the  census  of  1920,  of  as  much  as  ninety  thousand 
miles.  We  have  not  had  one-sixth  of  it.  The  in- 
crease has  been  less  than  fifteen  thousand  miles,  the 
irreducible  minimum,  just  enough  to  keep  the  railroads 
alive.  A  "craven  fear  of  being  great"  has  possessed 
our  politicians.  They  have  paralyzed  the  growth  of 
our  most  important  industry  rather  than  permit  a  few 
conspicuous  individuals  to  grow  rich  by  the  turning  of 
great  ideas  to  great  needs.  Harriman  and  Hill  were 
rich  when  they  died.  I  knew  them  both,  and  I  know 
that  their  wealth  was  almost  fortuitous.  They  were 
rich  because  they  could  have  done  nothing  creative 
without  the  necessary  financial  strength  to  make  them 
independent.  But  Harriman  never  controlled  the 
stock  of  one  of  the  railroads  he  directed.  He  was 


implicitly  and  deservedly  trusted  by  the  stockholders. 
He  never  had  a  voting  majority  in  Southern  Pacific, 
Union  Pacific  or  even  Chicago  &  Alton.  He  and 
Hill,  incidentally  to  their  own  wealth,  brought  com- 
fort, competence,  affluence,  to  millions  of  Americans 
they  never  saw.  The  period  of  railroad  development 
so  clearly  set  forth  in  the  record  and  chart  of  our 
barometer  from  1897,  the  end  of  the  reconstruction 
era,  to  1907,  the  beginning  of  the  destruction  era,  was 
upon  the  whole  the  greatest,  most  deservedly  success- 
ful and  most  creative  period  in  American  history. 

A  Cycle  of  Human  Folly 

We  have  seen  and  proved  the  correctness  of  Dow's 
theory  of  the  price  movement.  We  know  that  the 
stock  market  has  simultaneously  a  major  swing  up- 
ward or  downward,  a  secondary  reaction  or  rally,  and 
a  daily  fluctuation.  But  might  we  not  almost  go 
further  and  establish  a  sort  of  cycle  of  our  own,  not 
related  in  the  least  to  those  cycles  which  we  have  previ- 
ously considered,  with  their  imposing  and  instructive 
lists  of  panic  dates?  The  Harvard  University  chart 
ventures  as  far  as  is  wise  and  profitable.  Its  series  is 
"Depression,"  "Revival,"  "Prosperity,"  "Strain," 
"Crisis,"  without  assuming  absolute  length  for  any  of 
these  states,  and  even  taking  "Strain"  and  "Crisis," 
or  "Crisis"  and  "Panic,"  or  "Strain"  and  "Panic,"  as 
in  some  cases  coincident.  But  there  is  another  cycle 
which  we  can  deduce  from  our  records  of  the  averages, 
which  could  almost  be  called  a  cycle  of  human  folly. 


2i4    THE  STOCK  MARKET  BAROMETER    , 

It  could  only  occur  in  a  democracy  such  as  ours,  where 
a  people  with  the  power  to  govern  themselves  too 
rashly  assume  and  misconstrue  the  greatest  privilege 
of  such  a  democracy — the  power  to  make  their  own 
mistakes. 

Coxey's  Army 

It  will  not  be  difficult  to  show  what  I  mean.  In 
the  year  1890,  with  a  Republican  President  and  a 
Republican  Congress,  the  air  was  full  of  uncertainty 
and  sectionalism;  and  legislation,  which  is  always  in 
some  degree  a  compromise,  had  become  an  immoral 
compromise.  A  true  statesman  can  compromise  suc- 
cessfully on  non-essentials  with  no  real  sacrifice  of  vital 
principles.  But  the  Sherman  Silver  Purchase  Act  was 
a  sacrifice  of  principle  which  brought  about  the  gravest 
consequences,  because  it  adulterated  the  very  lifeblood 
of  our  financial  system.  The  great  and  inevitable 
panic,  due  to  consequent  inflation  and  overspecula- 
tion,  might  well  have  come  in  1892  had  it  not  been 
that,  in  that  year,  we  had  an  extraordinarily  large 
wheat  harvest  coincidentally  with  a  complete  failure 
of  the  crop  of  Russia,  our  only  considerable  inter- 
national competitor.  The  panic  came,  therefore, 
in  1893. 

For  four  years  after  the  country  was  full  of  very 
much  the  same  kind  of  Populism  which  is  so  rife  at 
present.  Coxey's  Army  started  from  Masillon,  Ohio, 
to  march  on  Washington  in  1894.  Coxey's  main 
postulate — that  prosperity  could  be  restored  with  the 


REGULATION  AND  RAILROADS     215 

I 

unlimited  issue  of  fiat  money — was  marching  all  over 
the  United  States.  The  Middle  West  was  rotten  with 
it.  The  turn  of  the  tide  was  marked  by  William  Allen 
White's  celebrated  editorial,  "What's  the  Matter 
With  Kansas?"  Railroad  managers,  during  those 
dreadful  years,  were  in  the  last  depths  of  despair.  All 
but  a  few  strong  and  sound  roads  went  into  bank- 
ruptcy. As  much  as  87  per  cent  of  the  country's  rail- 
road mileage  in  1896  was  in  receivership.  Only  with 
the  first  election  of  McKinley  did  the  country  emerge 
into  a  state  of  sanity  and  light. 

Ten  Prosperous  Years 

It  had  tried  out  the  Populist  follies — free  silver  and 
all  the  rest  of  them — and  found  that  they  pointed  in 
the  direction  of  national  bankruptcy.  Politicians  were 
terrified  at  the  results  of  their  rash  enactments.  For 
ten  years,  between  1897  and  1907,  the  paralyzing  hand 
of  politics  was  removed  from  the  business  of  the 
United  States.  We  never  had  such  a  period  of  pros- 
perity, before  or  since.  The  railroad  development  in 
that  time  was  greater  than  it  had  ever  been  before. 
It  was  a  decade  which  saw  the  broadest  and  most 
beneficent  industrial  amalgamations,  of  which  the 
United  States  Steel  Corporation  is  the  outstanding 
example.  It  was  a  time  when  the  cost  of  living  was 
upon  the  whole  low,  although  it  was  rising  in  the  latter 
part  of  the  ten-year  period.  It  was  a  time  when  wages 
were  good,  not  merely  in  their  amount  as  expressed  in 
dollars  and  cents,  but  in  their  purchasing  power. 


216    THE  STOCK  MARKET  BAROMETER 
"And  Jesurun  Waxed  Fat,  and  Kicked" 

But  "Jesurun  waxed  fat,  and  kicked."  Can  it  be 
that  democracies  cannot  stand  prosperity?  Or  is  there 
still  no  need  to  make  so  wide  an  assumption?  We 
have  seen  that  labor  agitation  reaches  its  maximum, 
not  in  the  lean  years,  when  unions  are  impotent  or 
non-existent,  but  in  the  fat  years,  when  labor  is  at  a 
premium  and  the  leaders  have  at  their  disposal  more 
union  funds  than  they  can  wisely  spend.  Agitation  is 
not,  as  so  many  of  us  have  assumed,  the  result  of  trade 
depression.  It  is,  indeed,  the  kicking  of  the  national 
Jesurun  when  he  waxes  fat.  The  dangerous  founda- 
tion of  the  Populism  which  ineffaceably  marked  the 
nineties  had  been  laid  in  the  years  before.  We  seem 
to  be  running  into  such  an  era  of  Populism  once  more. 
The  war  has,  of  course,  thrown  any  possible  "cycle" 
out  of  kilter,  but  the  evil  fertilization  of  the  impres- 
sionable public  mind,  implanted  by  the  agitation  against 
personal  property,  is  bound  to  bear  its  noxious  fruit 
in  the  years  to  come. 

Public  Opinion's  Second  Thoughts 

It  would  be  extending  the  purpose  of  the  stock  mar- 
ket barometer,  and  the  design  of  these  discussions 
beyond  their  proper  field,  if  I  ventured  upon  a  forecast 
based  upon  this  cycle  of  popular  folly.  We  can  see 
how  far  behind  us  the  golden  ten-year  period  of  true 
prosperity  is.  We  can  name  the  peak  of  it.  We  saw 
its  sudden  and  dramatic  collapse  in  1907.  The  fever- 


REGULATION  AND  RAILROADS     217 

ish  productive  activity  growing  out  of  the  war  is  no 
fair  test,  just  as  it  is  no  sound  basis.  Before  another 
ten  years  like  those  between  1897  and  1907  can  be 
inaugurated,  must  the  country  go  through  a  period 
at  the  end  of  which  it  will  ask  itself,  not  "What's  the 
matter  with  Kansas?"  but  "What's  the  matter  with 
America?"  I  would  be  a  poor  American  indeed  if  I 
did  not  believe  that  the  good  sense  of  the  American 
people  can  find  the  right  answer  when  that  day  comes. 
There  is  no  weaker  fallacy  of  democracy  than  the  one 
which  assumes  that  public  opinion  is  always  right.  It 
depends  on  what  you  call  "public  opinion."  Such 
opinion,  as  represented  by  the  voice  of  the  noisiest,  in 
its  first  expression  is  generally  wrong,  or  right  for  the 
wrong  reason.  But  the  second  thought  of  the  great 
American  people,  as  history  shows,  is  usually  right. 

Recalling  Lincoln 

Annually  we  repeat  to  each  other  the  great  words 
of  the  Gettysburg  Address.  Lincoln  declared  that 
what  was  said  there — and  be  it  remembered  that  he 
was  not  at  the  time  considered  the  principal  orator  ot 
that  great  occasion — would  bear  little  place  in  men's 
memories  compared  with  what  was  done  there.  He 
underrated,  with  characteristic  modesty,  the  imperish 
able  quality  of  a  great  thought  greatly  expressed. 
Lincoln's  words  in  1863  at  Gettysburg  will  be  remem- 
bered by  millions  who  will  hardly  know  the  conditions 
of  that  battle  01  which  side  won  it,  except  to  assume 
that  the  imperishable  Union  was  there  sustained.  But 


2 1 8    THE  STOCK  MARKET  BAROMETER 

if,  at  that  time,  there  had  been  in  operation  a  federal 
law  to  "recall"  officers  federally  elected,  it  is  well 
within  the  bounds  of  probability  that  Lincoln  might 
have  been  recalled  and  not  re-elected.  It  was  not  until 
the  following  year  that  his  re-election  to  the  presi- 
dency was  a  certainty,  and  there  are  readers  of  these 
discussions  old  enough  to  remember  the  moral  depres- 
sion of  1863  and  its  effect  upon  the  public  mind. 

Paying  for  Government  Meddling 

It  can  be  seen,  from  this  instance  of  many,  that  the 
second  thought  of  the  American  mind  was  right,  where 
its  first  impression  may  well  have  been  wrong.  Look 
at  the  enthusiasm  recently  created  in  the  Middle  West 
by  the  Non-Partisan  League,  with  its  half  grain  of 
truth  and  its  bushel  of  quackery  or  fraud.  Dare  we 
assume  that  we  have  extruded  that  poison  from  our 
system?  Hardly  a  week  passes  that  a  bill  for  the 
creation  of  billions  of  fiat  money,  under  one  pretext 
or  another,  is  not  introduced  into  the  Congress  of  the 
United  States. 

If  there  is  one  lesson  which  should  have  been  burned 
in  upon  the  public  mind  in  the  past  decade,  it  is  that 
when  government  interferes  with  private  enterprise, 
even  where  that  enterprise  is  directed  to  the  develop- 
ment of  a  public  utility,  it  can  do  incalculable  harm 
and  very  little  good.  The  people  who  develop  the 
railroads  and  the  natural  resources  of  the  country  are 
only  ourselves.  Railroad  ownership  is,  in  a  way,  more 
representative  than  ever  Congress  can  be.  It  includes 


REGULATION  AND  RAILROADS     219 

every  depositor  in  the  saving  banks,  every  holder  of  an 
insurance  policy,  and,  indirectly,  every  holder  of  a 
United  States  bond,  so  long  as  the  interest  on  that 
bond  is  dependent  on  taxation  largely  derived  from 
railroad  enterprise. 

Legislating  Everybody  Poor 

It  must  be  admitted  that  this  chapter  is  less  about 
the  averages  as  a  barometer  than  as  a  record.  But 
our  discussions  would  be  incomplete  if  the  most  im- 
portant lesson  of  that  record  were  overlooked  for  the 
easily  understood  psychological  reason  that  it  is  writ- 
ten in  such  large  letters  across  the  sky.  Look  at  the 
course  of  the  railroad  averages  on  the  twenty-five-year 
chart.  More  than  sixteen  years  ago  the  twenty  active 
railroad  stocks  made  the  highest  point  on  record,  at 
138.36,  on  January  22,  1906.  They  never  saw  that 
figure  again,  but  came  within  less  than  four  points  of 
it  in  August,  1909,  at  134.46.  The  next  high  point 
was  in  October,  1912,  at  124.35 — more  than  fourteen 
points  below  the  record.  On  the  next  advance  the  net 
recession  was  still  further,  while  the  railroad  average 
reached  only  109.43  on  January  31,  1914,  the  top  of 
a  half-hearted  rally.  Even  the  next  recovery,  in  the 
first  bull  market  of  the  war,  only  carried  the  railroad 
stocks  to  112.28,  on  October  4,  1916.  They  did  not 
share  the  bull  market  of  1919,  as  we  know,  for  we 
have  devoted  an  earlier  chapter  to  the  study  of  the 
reason. 

To-day  the  price  is  fifty  points  below  the  record,  and 


220    THE  STOCK  MARKET  BAROMETER 

less  than  fourteen  points  above  the  low  figure  of  July 
25,  1898 — more  than  twenty-three  years  ago.  Analyze 
this  steady  decline  over  a  period  of  sixteen  years,  suffi- 
cient to  include  the  simple  cycle  of  the  Harvard  Uni- 
versity Committee  on  Economic  Research  at  least 
twice  over — more  than  long  enough  to  exceed  the 
period  between  two  of  our  greatest  panics — those  of 
1857  and  1873 — covering  a  time  60  per  cent  longer 
than  the  Jevons  ten-year  cycle.  See  how  the  steadily 
declining  line  of  values  mocks  and  belittles  the  assumed 
medial  line  of  growing  national  wealth  postulated  in 
some  of  the  better-known  business  charts.  Can  the 
richest  nation  in  the  world  afford  to  allow  its  politicians 
to  run  its  greatest  investment  and  its  greatest  industry 
into  the  ground  as  steadily  and  stupidly  as  this  ?  Are 
we  throwing  away  the  thing  our  fathers  built,  or  allow- 
ing politicians  to  squander  it,  from  some  idea  that  the 
ruin  of  the  railroad  stockholders  will  make  other 
people  richer  and  happier?  We  know,  or  ought  to 
know,  that  we  cannot  legislate  everybody  rich.  But 
here  is  one  more  example  added  to  that  of  Russia,  of 
how  it  is  possible  to  legislate  everybody  poor. 


I 


Chapter  XIX 

A  STUDY  IN  MANIPULATION — 1900-! 

T  has  been  shown  in  previous  discussions  how  rela- 
tively unimportant  stock  market  manipulation  is. 
But  history  presents  some  striking  instances  of  manip- 
ulation, and  much  was  possible  in  the  Wall  Street  of 
two  decades  back  which  would  not  be  feasible  or  toler- 
ated to-day.  It  would  not,  for  instance,  be  within  the 
bounds  of  possibility  to  manipulate  either  the  Steel 
stocks  or  Amalgamated  Copper  for  distribution  to-day 
as  they  were  undoubtedly  manipulated  by  James  R. 
Keene  twenty-one  years  ago.  These  two  stocks  are 
merely  offered  for  example,  and  it  is  not  to  be  assumed 
that  I  am  placing  them  on  a  parity.  There  was  an 
arrogant  impudence  about  the  distribution  of  Amalga- 
mated Copper  which  makes  me  hot  all  over,  even  now. 
I  remember  that  I  criticized  it,  with  all  the  freedom  the 
law  (and  Charles  H.  Dow)  allowed,  at  the  time  it 
was  in  progress. 

Conceived  in  Sin 

The  Amalgamated  Copper  Company  was  conceived 
in  sin  and  born  under  similar  auspices.  It  was  offered 
for  subscription  with  a  capital  of  $75,000,000  early 
in  1899,  and  the  subscription  books  closed  on  May  4th 
of  that  year.  A  number  of  "newspapers,"  of  a  kind 

221 


222    THE  STOCK  MARKET  BAROMETER 

now  happily  defunct,  reported  that  the  stock  had  been 
"five  times  oversubscribed!"  It  did  not  sound  prob- 
able, with  the  stock  selling  at  a  heavy  discount  in  less 
than  a  month.  The  general  stock  market  was  on  the 
down  grade  then.  It  did  not  turn  until  the  summer  of 
the  following  year.  Of  all  the  contemporary  com- 
ments on  that  disreputable  exploit  those  of  the  Boston 
News  Bureau,  which  flatly  refused  to  be  humbugged, 
were  about  the  most  vitriolic.  Here  is  one  of  them, 
published  less  than  a  month  after  the  fivefold  "over- 
subscription." On  June  I,  1899,  the  Boston  News 
Bureau  said: 

"The  drop  in  Amalgamated  Copper  stock  which  was  the 
feature  of  the  trading  in  outside  securities  yesterday,  was  par- 
ticularly appropriate  at  this  time  when  the  general  railway 
list  is  on  the  down  grade.  Many  shrewd  observers  in  Wall 
Street  contend  that  the  formation  of  the  Amalgamated  Copper 
Company  was  the  red  flag  which  warned  conservative  investors 
and  speculators  away  from  the  security  market;  that  a  blind 
pool  calling  for  a  capital  of  $75,000,000  should  be  oversub- 
scribed five  times  was  an  indication  to  the  better  element  of 
speculators  that  the  public  lost  its  head  and  the  crash  would 
not  be  far  distant. 

"One  of  the  worst  features  of  the  whole  case  is  that  the 
National  City  Bank,  which  is  the  largest  institution  of  its  kind 
in  this  country,  should  have  stood  sponsor  for  such  a  transac- 
tion," etc.,  etc. 

Amalgamated  Copper 

It  will  be  seen  that,  in  spite  of  all  the  flubdub  circu- 
lated about  "oversubscription,"  the  flotation  had  been 
a  failure.  The  Boston  News  Bureau  continued  to  com- 
ment upon  "'The  Amalgamated  Fiasco,"  "Promises 


MANIPULATION— 1900-1  223 

and  Predictions  Against  Realities,"  "The  Humor  and 
Pathos  of  Copper  Promises,"  in  an  acridly  humorous 
vein.  In  the  same  month  of  June  there  were  rumors 
that  control  of  the  Anaconda  company  had  been  pur- 
chased by  the  organizers  of  Amalgamated  Copper, 
for  something  like  $45  a  share,  though  it  was  quoted 
at  $70  a  share  by  the  time  Amalgamated  was  floated, 
and  was  said  to  be  going  into  the  new  Amalgamated 
company  at  $100  a  share.  The  same  Boston  article 
points  out  that  the  $75,000,000  capital  of  Amalga- 
mated Copper  should  have  been  sufficient  to  pay  for 
the  entire  capital  of  the  constituent  companies, 
although  only  a  control,  presumably  51  per  cent,  was 
declared  to  have  been  acquired.  The  whole  transac- 
tion was  so  raw  that  in  the  better  Wall  Street  of  to-day 
it  seems  almost  unbelievable. 

Keene's  Part  in  Distribution 

In  the  latter  part  of  1904,  three  years  after  the 
manipulated  distribution  of  the  stock  by  James  R. 
Keene  had  taken  place,  that  eminent  operator  wrote 
a  letter,  which  became  public,  in  which  he  admitted 
that  he  distributed,  "for  the  account  of  Henry  H. 
Rogers  and  associates,"  $22,000,000  of  Amalgamated 
Copper  (two  hundred  and  twenty  thousand  shares)  at 
prices  ranging  from  ninety  to  ninety-six.  In  that  letter 
he  indicated  the  period  of  distribution  with  sufficient 
clearness.  In  the  following  January  I  published,  in 
The  Wall  Street  Journal,  an  analysis  of  what  he  had 
done,  as  shown  by  the  recorded  sales,  under  the  title 


224    THE  STOCK  MARKET  BAROMETER 

of  "A  Study  in  Manipulation."  That  analysis  did  not 
deal  with  the  ethical  question.  You  cannot  say  much 
about  the  ethics  of  people  who  seem  to  have  none.  By 
taking  the  sales  of  Amalgamated  Copper  stock,  as 
recorded  on  the  ticker,  together  with  the  names  of  the 
brokers  executing  orders  as  reported  from  the  Stock 
Exchange,  and  by  comparing  periods  of  activity  it 
seemed  possible  to  dot  Mr.  Keene's  "i's"  and  cross 
his  "t's." 

It  had  the  result  of  making  me  some  enemies  in 
Wall  Street,  although,  to  do  James  R.  Keene  justice, 
I  do  not  think  he  was  one  of  them.  I  have  said  before 
that  we  were  never  intimate.  But  he  made  oppor- 
tunities to  see  me  at  various  times  after  that  analysis 
was  published,  and  nothing  I  could  say  seemed  to  con- 
vince him  that  I  had  not  had  some  illicit  access  to  his 
books.  As  he  put  it,  "Somebody  must  have  leaked." 
The  Wall  Street  of  that  time,  and  the  nature  of  his 
own  business,  made  Keene  habitually  suspicious.  His 
mentality  was  incomplete  in  the  respect  that  he  found 
it  hard  to  believe  a  simple  truth  where  it  depended 
upon  the  unsupported  word  of  anybody.  Really  great 
men,  and  some  children,  know  when  to  believe — and 
whom.  Keene  was  not  a  great  man. 

A  Difference  Between  Steel  and  Copper 

Leaving  all  questions  of  ethics  apart,  there  was 
probably  nothing  more  ably  done  in  its  day  than  the 
distribution  of  Amalgamated  Copper  in  the  stock 
market.  Keene's  handling  of  United  States  Steel  com- 


MANIPULATION— 1900-1  225 

mon  and  preferred  will  remain  an  example  of  con- 
summate generalship.  But  in  that  instance  he  had  the 
enormous  advantage  of  a  public  which  wanted  the 
stock  he  had  to  sell.  It  is  not  true  that  there  was  much 
real  "water"  in  the  capitalization  of  Steel.  What  was 
called  watered  capital  was  only  intelligently  antici- 
pated growth.  United  States  Steel  was  floated  in 
1901,  and  three  years  afterwards  was  showing  a  well- 
established  surplus  of  4.9  per  cent  on  the  common 
stock  sold  to  the  public  at  fifty,  which  surplus  had  been 
more  than  doubled  by  1905.  In  an  earlier  article  I 
have  pointed  out  the  genuine  book  value  of  the 
stock  now. 

But  Amalgamated  Copper  was  an  utterly  different 
proposition.  As  a  work  of  art  the  distribution,  com- 
pared with  that  of  Steel,  bears  about  the  relation  of 
a  Meissonier  to  one  of  the  heroic  battle  pictures  of  De 
Neuville.  Keene,  in  his  subsequent  statement,  said 
that  he  was  reluctant  to  take  the  matter  in  hand.  It 
was  not  that  he  had  to  create  a  market,  as  in  the  case 
of  United  States  Steel  common  and  preferred;  he  had 
to  begin  his  distribution  in  a  market  which  others  had 
done  their  stupid  best  to  spoil. 

Earlier  Manipulation 

On  analysis  of  the  sales,  the  first  significant  period 
seems  to  be  that  between  December  3,  1900,  and  about 
the  middle  of  January,  1901.  Taking  advantage  of 
the  general  bull  movement  which  set  in  shortly  before 
the  second  election  of  McKinley,  such  members  of  the 


226    THE  STOCK  MARKET  BAROMETER 

public  as  had  really  subscribed  for  Amalgamated  Cop- 
per originally  were  unloading  on  the  promoters  of  the 
enterprise.  Certain  "court  circulars"  of  the  time  were 
talking  boldly  of  "inside  buying."  They  were  right  for 
once.  Insiders  were  buying  because  they  could  not  help 
themselves.  They  were  "accumulating,"  much  against 
their  will,  to  judge  from  the  downward  movement  of 
the  stock.  With  a  knowledge  of  the  backs  of  the  cards 
as  well  as  the  faces,  the  "Standard  Oil  crowd"  which 
hatched  the  company  could  not  conceal  their  crude  and 
clumsy  methods.  We  may  here  recapitulate  the  move- 
ments and  total  sales  during  this  period: 
The  opening  price  December  3,  1900,  was  96 

Sales  from  December  3d  to  December 

I3th  were 160,000 

The  fluctuation  in  that  period  was  from  96  to  90^ 
Sales  from  December  14,  1900,  to  Jan- 
uary n,   1901,  were 295,000 

The  fluctuation  in  that  period  was  from  89^   to  9^ 
With  all  this  stimulation  the  closing  price  on  Jan- 
uary II,  1901,  was  only  giy&. 

Keene's  First  Appearance 

Keene's  first  appearance  seems  to  have  been  made 
then,  and  he  was  much  too  clever  not  to  see  that  it 
would  be  necessary  to  break  the  market  for  the  stock 
before  he  put  it  to  a  level  which  would  attract  the 
speculative  public.  The  next  record  is: 
Opening  price  January  12,  1901....  91 

Sales  from  January  I2th  to  January 

I9th 70,000 


MANIPULATION— 1900-1  227 

Fluctuation  in  that  period  from 92^  to  90 y± 

Closing  price  January  I9th 90^ 

Sales  from  January  2Oth  to  January 

26th  88,000 

Fluctuation  in  that  period  from 92  to  83^4 

Closing  price  January  26th 89 

This  closing  price  of  January  26th  is  a  tribute  to 
Keene's  ability.  It  was  a  much  more  real  price  than 
the  ninety-six  momentarily  established  by  the  fatuous 
"insiders"  in  the  previous  December.  The  beginning 
of  Keene's  operations  is  characteristic.  There  were 
transactions  averaging  from  twenty  thousand  to  thirty 
thousand  shares  daily  in  the  third  week  of  January, 
1901,  when,  on  the  2Oth  of  the  month,  the  price  was 
hammered  to  eighty-six,  fluctuated  between  83^  and 
89  on  the  following  day,  and  tended  to  settle  down 
stolidly  at  8854  on  the  day  after.  The  gossip  obtain- 
able at  the  time  was  beneath  contempt  from  a  news 
point  of  view,  but  was  well  calculated  to  stimulate  the 
avarice  of  the  public.  Everything  tended  to  show 
that,  if  Keene  was  in  the  market  at  all,  he  was  raiding 
the  stock  for  a  turn  on  the  bear  side.  It  is  not  ven- 
turing too  far  to  say  that  he  had  previously  taken  no 
trouble  to  cover  up  his  tracks,  in  order  to  create  exactly 
that  impression. 

What  a  Major  Bull  Swing  Made  Possible 

But  the  McKinley  boom  in  the  broadening  market 
was  well  under  way.  Stocks  were  in  that  great  swing, 
so  violently  interrupted,  but  not  terminated,  by  the 


228     THE  STOCK  MARKET  BAROMETER 

Northern  Pacific  corner  and  panic  of  the  following 
May.  Nothing  could  have  suited  Keene  better  than 
to  have  it  believed  that  he  was  short  of  a  "Standard 
Oil  stock."  He  admits  to  having  sold  all  the  stock 
of  the  Rogers  pool,  at  prices  from  ninety  to  ninety 
six,  shortly  before  the  advance  to  one  hundred  and 
twenty-eight.  That  advance  did  not  take  place  until 
the  middle  of  the  following  April,  but  early  in  March 
the  stock  was  already  selling  well  above  par.  I 
assumed,  when  writing  in  1905,  that  Keene  meant  that 
the  $22,000,000  of  stock  was  not  credited  to  Rogers 
and  his  friends  at  one  average  price,  but  perhaps  in 
a  series  of  large  blocks  of  stock  averaging  from  ninety 
to  ninety-six,  after  allowing  for  the  cost  of  manipula- 
tion. Some  of  it  was,  of  course,  sold  much  higher, 
but  we  have  already  seen  that  some  of  it  was  sold 
below  eighty-four. 

Keene's  Second  Stage 

Keene  was  not  the  man  to  press  the  market  when 
it  was  going  his  way,  and  there  followed  a  period 
where  the  stock  was  judiciously  allowed  to  take  care 
of  itself,  with  occasional  stimulus  to  cultivate  bullish 
sentiment.  Transactions  were  in  relatively  light  vol- 
ume. In  the  next  period  the  extreme  fluctuation  was 
less  than  five  points,  but  it  is  noteworthy  that  the 
higher  figure  was  the  prevailing  price  when  we  see 
Keene's  hand  again: 

Sales  January  26th  to  February  23d. .  110,000 

Fluctuation  in  that  period 92^  to  87^4 


MANIPULATION— 1900-1  229 

In  this  quiet  period  of  a  month  he  may  have  sold 
some  real  stock  but  certainly  never  forced  it  on  the 
market.  It  is  difficult  to  say  how  many  shares  he  actu- 
ally dealt  in  that  he  might  distribute  so  large  a  quan- 
tity. It  was  possibly  ultimately  three  times  the  stock 
he  had  to  sell.  In  the  early  stages  he  was  employing 
brokers  on  both  sides  of  the  market,  even  if  they  did 
not  know  that  they  were  executing  matched  orders. 
That  was,  and  is,  against  the  Stock  Exchange  rules, 
and  we  can  afford,  at  this  distance  of  time,  to  give  them 
the  benefit  of  the  doubt.  As  the  market  improved, 
manipulation  of  that  kind  probably  grew  less,  and  of 
course  as  the  public  took  hold  it  disappeared 
altogether. 

Keene's  Final  Distribution 

What  may  be  called  the  third  movement  shows  the 
final  distribution  of  the  stock: 

Opening  price  February  28th 92^ 

Sales  February  28th  to  April  3d 780,000 

Fluctuation  in  that  period  from 92  to   103^ 

Closing  price  April  3d 100^ 

It  is  in  this  period  that  Keene  probably  distributed 
the  bulk  of  his  two  hundred  and  twenty  thousand 
shares.  He  admitted  that  much  to  me,  and  was  never 
satisfied  with  my  answer  to  his  question  as  to  how  I 
knew. 

It  is  one  of  the  discreditable  facts  of  that  period 
that  throughout  this  trading  Amalgamated  Copper 
was  practically  on  an  8  per  cent  basis.  It  was  declar- 


230    THE  STOCK  MARKET  BAROMETER     , 

ing  i  y*,  per  cent  quarterly,  with  a  half  per  cent  extra ; 
and  its  directors,  with  that  extraordinary  fatuity  for 
which  the  public  ultimately  paid,  were  convinced  that 
they  could  hold  up  the  world  price  of  the  metal  in- 
definitely. One  of  the  items  of  gossip  in  the  early 
part  of  the  Keene  movement  was  to  the  effect  that  the 
decline  of  the  metal  in  London,  then  and  now  the 
world's  free  market  for  copper,  had  at  last  been 
checked  effectually.  It  was  not  so.  But  it  was  as  near 
the  truth  as  any  of  the  rumors  of  that  curious  time. 
It  was  some  years  before  the  competing  copper  mag- 
nate, Augustus  Heinze,  reached  a  settlement  with  the 
Amalgamated  Copper  people,  but  such  a  settlement 
was  among  the  rumors  then  exploited,  and  one  of  the 
principal  bull  arguments. 

The  Public's  Own  Boom 

As  a  net  result  of  the  manipulation  here  detailed 
Keene  had,  in  the  first  fortnight  of  April,  1901,  created 
a  market  for  the  stock  which  may  well  have  surprised 
himself.  It  was  at  least  twice  as  broad  as  it  had  been 
in  February  or  March,  with  daily  transactions  amount- 
ing to  two  hundred  and  fourteen  thousand  shares  in 
one  case,  and  to  almost  as  much  on  several  other  days 
during  that  month.  It  should  be  compared  with  the 
record,  during  Keene's  activities,  of  seventy-seven 
thousand  shares  on  March  6th,  with  an  extreme  fluc- 
tuation of  nearly  three  points. 

It  may  be  taken  that  the  subsequent  trading  showed 
all  obstacles  removed  from  the  stock's  pathway  to 
the  top:  ,  , 


MANIPULATION—  1 900-1  231 

Sales  from  April  4th  to  April  i6tH. .  1,275,000 

Advance  in  price  from loi^i   to  128^ 

The  stock  of  the  Rogers  pool  had  been  marketed 
and,  indeed,  greedily  eaten  up  in  the  enthusiasm  of  a 
general  bull  market. 

Their  Own  Gold  Brick 

It  is  a  humiliating  exhibit  in  the  indictment  of 
human  nature  that  the  "insiders"  who  had  called  in 
Keene  seem  actually  to  have  begun  to  believe  in  their 
own  gold  brick.  It  is  of  record  that  Henry  H.  Rogers, 
quite  in  the  manner  of  the  man  who  has  "heard  some- 
thing from  a  friend  of  his  who  knows  an  insider," 
informed  Keene  that  "the  stock  was  going  to  advance ; 
that  he  had  received  letters  from  parties  who  were 
going  to  buy,  and  that  he  suggested  Mr.  Keene  should 
join  in  the  movement."  It  is  needless  to  say  that  the 
net  was  vainly  spread  in  the  sight  of  that  wary  old 
bird.  But  the  stock  certainly  advanced  some  twenty 
points  beyond  the  price  at  which  it  was  selling  when 
Keene  had  finished  his  distribution. 

It  is  also  significant,  in  the  study  of  an  incident 
which  is  not  at  all  likely  to  recur,  that,  in  the  later 
trading,  houses  which  felt  flattered  in  those  days  to 
be  called  "Keene  brokers"  were  much  more  conspic- 
uous than  in  the  earlier  time  when  the  real  Keene 
trading  was  in  progress.  Mr.  Keene's  name,  to  judge 
by  the  gossip  current  at  the  time,  was  only  mentioned 
when  he  had  safely  completed  his  selling.  What  hap- 
pened subsequently  would  be  interesting  to  know,  but 
there  is  not  the  same  evidence  to  go  upon. 


232    THE  STOCK  MARKET  BAROMETER 
Petroleum  and  Swelled  Head 

There  is  no  "Standard  Oil  crowd"  now.  The  mil- 
lionaires who  comprised  that  group  were  new  to  the 
possession  of  great  wealth.  They  believed  themselves 
invincible,  up  to  the  time  of  the  issue  of  Amalgamated 
Copper.  They  made  many  mistakes,  then  and  after, 
but  as  time  went  on  they  learned  sense  and  got  out  of 
the  stock  market.  They  were  so  overwhelmingly 
right  about  petroleum,  and  particularly  Standard  Oil, 
that  they  could  afford  to  risk  enormous  losses  in  other 
directions.  Some  day  some  one  will  unkindly  tell  the 
^tory  of  young  Mr.  John  D.  Rockefeller,  and  his  ven- 
ture in  "Little  Leather."  Only  a  young  man  with  a 
really  well-to-do  father  could  afford  to  spend  so  much 
on  his  education.  There  is  good  reason  to  suppose 
that  his  expensive  post-graduate  course  in  the  school 
of  experience  had  permanent  and  even  admirable  effect. 

I  have  told,  in  earlier  discussions,  how  heartily 
wrong  Henry  H.  Rogers  could  be,  and  how  his  pride 
of  opinion  laid  all  the  blame  upon  the  ignorant  stock 
•arket,  which,  in  the  last  showdown,  is  always  right. 
When  he  died  in  1908  he  was  worth  $50,000,000,  and 
it  is  possible  that  his  estate  would  have  shown  twice 
that  amount  had  he  lived  another  two  years.  Some 
of  his  work  was  good,  and  calculated  to  endure.  The 
Virginian  Railroad  was  the  best  built  road,  in  its 
original  construction,  ever  undertaken  and  completed 
in  the  United  States.  It  almost  broke  the  heart  of 
its  godfather  that,  with  his  financial  backing  and  per- 
sonal wealth,  he  was  compelled  to  borrow  money  in 


MANIPULATION— 19001  233 

1907  for  his  pet  railroad,  on  terms  equal  to  7  per  cent 
with  his  personal  guaranty.  Even  there  he  miscal- 
culated the  meaning  of  the  stock  market.  It  was 
saying,  in  the  most  explicit  way,  that  H.  H.  Rogers 
was  lucky  to  get  money  on  any  terms  whatever. 
Money  of  that  kind  during  the  panic  year  may  be  said 
to  have  commanded  anything  the  lender  chose  to  ask. 

Lessons  from  the  Incident 

In  this  detailed  examination  of  a  notorious  essay  in 
manipulation  there  are  some  important  lessons  on  the 
nature  and  quality  of  our  barometer.  Remember  that 
Amalgamated  Copper  was  in  the  Unlisted  Depart- 
ment of  the  Stock  Exchange,  which  is  now  abolished. 
It  was,  as  the  Boston  News  Bureau  said  at  the  time, 
a  blind  pool,  in  every  sense  of  the  term.  Nothing  like 
it  could  occur  under  the  present  listing  requirements. 
I  do  not  believe  that  anything  of  the  kind  would  be 
possible  in  the  Curb  Market's  new  Exchange.  Mod- 
ern methods  of  publicity  are  so  much  better  than  those 
of  twenty  years  ago  that  a  movement  of  such  a  nature 
would  not  last  for  a  week  before  it  met  the  active  and 
effective  opposition  of  the  banks.  No  financial  clique, 
like  that  which  constituted  the  Standard  Oil  group, 
is  likely  to  acquire  in  the  future  the  unwholesome 
power  which  was  exercised  at  the  time  we  have  had 
under  review.  But  the  best  of  all  protections  is  the 
greatly  enlightened  public  opinion.  Information  on 
financial  matters  is  now  incalculably  better  than  it  ever 
was  before.  The  cure  for  corruption  is  publicity. 
There  is  no  such  sanitary  agent  as  full  daylight.  Peo- 


234    THE  STOCK  MARKET  BAROMETER 

pie  are  no  longer  deceived  by  the  mystery  talk  which 
was  peddled  as  news  two  decades  ago.  The  infalli- 
bility of  the  "insider"  has  been  utterly  exploded.  The 
stock  market  barometer,  based  upon  Dow's  theory  of 
the  triple  simultaneous  movement  of  the  market,  has 
increased  in  dependability  as  the  years  have  gone  by. 
Certainly  it  is  in  no  real  danger  from  manipulation, 
and  on  that  topic  I  have  something  further  to  add. 

A  Shift  of  Bad  Reporting 

Manipulation  in  the  stock  market  is  reported  twenty 
times  for  once  it  occurs.  It  is  the  inefficient  reporter's 
method  of  accounting  for  a  stock  market  movement 
which  he  has  not  taken  the  trouble  to  understand. 
Collection  of  news  in  Wall  Street  is  difficult,  but  not 
impossible.  It  requires  a  higher  average  of  intelli- 
gence than  news  collection  anywhere  else,  and,  if  it  is 
done  properly,  entails  unremitting  hard  work.  Un- 
remitting hard  workers  are  not  much  commoner  in 
the  newspaper  business  than  elsewhere.  The  financial 
reporter  is  tempted  by  the  fact  that  he  can  take  refuge 
in  technical  terms  not  understood  or  correctly  appre- 
ciated by  his  employers.  Except  in  such  a  responsible 
news  agency  as  the  Dow-Jones  service,  whose  very 
existence  depends  upon  the  integrity  of  what  it  gathers 
and  sells,  financial  reporting  is  apt  to  become  perfunc- 
tory, although  it  is  improving. 

Always  a  Reason,  and  Always  News 

This  is  a  matter  which  particularly  interests  me 
because  some  of  my  earliest  work  in  Wall  Street  was 


MANIPULATION— 19001  235 

writing  the  stock  market  paragraphs  for  the  Dow- 
Jones  news  service.  The  aim  was  to  get,  as  far  as 
possible,  a  reason,  if  only  a  tentative  reason,  for  all 
individual  and  general  fluctuations  in  the  market. 
Mere  generalities  were  not  accepted,  and  I  could  tell 
many  stories,  ranging  from  pathos  to  wild  absurdity, 
of  the  gathering  of  news  which  might  be  stale  in  half 
an  hour's  time.  Such  news  was,  of  course,  of  the 
highest  value  to  the  active  brokerage  and  banking 
houses,  serving  as  it  did  to  sustain  interest  in  the  mar- 
ket. They  all  had  customers  whose  appetite  for  such 
news  was  insatiable.  Even  at  an  interval  of  twenty 
years  I  am  humbled  by  the  crudity  of  some  of  the 
reasons  I  had  to  give,  especially  as  I  was  evolving  a 
method  out  of  nothing.  But  at  least  it  was  genuine 
news  collecting,  and  not  guessing.  I  look  back  on 
nothing  in  my  life  with  greater  pleasure  than  the 
friendly  expressions  of  regret  I  received  from  the 
active  houses  in  Wall  Street  when  I  relinquished  that 
nerve-racking  task  to  take  up  the  editorship  of  The 
Wall  Street  Journal.  Almost  necessarily,  a  reporter's 

yards  are  those  of  the  tinker's  donkey — "more  kicks 
than  ha'  pence."  He  has,  for  compensation,  the  most 
interesting  work  in  the  world — if  he  likes  to  make  it  so. 

Here  is  a  chief  reason  why  the  part  of  the  manipu- 
lation has  been  so  absurdly  exaggerated  in  the  public 
mind.  Every  movement  in  the  stock  market  has  a 
valid  explanation.  To  get  at  that  explanation  involves 
much  intelligent  research,  with  a  comparison  of  the 
carefully  sifted  expressions  of  the  people  concerned  in 
the  actual  market  movement — those  who  executed  the 


236    THE  STOCK  MARKET  BAROMETER 

orders  on  the  floor,  and,  preferably,  those  who  gave 
them.  The  research  can  be  carried  back  to  the  original 
source  of  the  orders  and  the  news  can  be  traced  fur- 
ther, to  the  reasons  for  buying  or  selling  stocks,  and 
the  particular  stocks  involved. 

Honest  News  Protects  the  Public 

Wall  Street  has  a  number  of  maxims  more  or  less 
of  the  nature  of  what  is  called  "dope."  One  of  these 
is,  "There  is  no  news  in  a  bull  market."  It  is  not  true, 
except  with  too  many  qualifications  to  justify  a  gen- 
eral rule.  There  is  news,  and  plenty  of  it,  in  any 
market  if  the  reporter  will  only  get  out  and  get  it. 
If  he  is  content  to  turn  out  perfunctory  paragraphic 
comments  on  the  market  for  the  evening  newspapers, 
or  even  for  the  morning  press ;  content  to  warm  over 
items  which  he  finds  in  the  financial  news  "slips,"  he 
will  take  refuge  in  such  expressions  as  "manipulation," 
"traders  selling,"  "Standard  Oil  buying,"  and  all  the 
other  fudge  which  some  newspaper  proprietors  still 
accept  as  news.  Wall  Street  is  the  financial  news 
center  of  the  world.  News  collection  there  has  stead- 
ily and  greatly  improved  in  my  time,  but  the  field  is 
simply  inexhaustible. 


Chapter  XX 

SOME   CONCLUSIONS — 1910-14 

"¥"T  7E  are  nearing  the  end  of  our  discussions  of 
W  The  Stock  Market  Barometer.  From 
readers  of  Barren's  during  their  serial  publication  I 
gathered  that  this  series  of  papers  had  been  illuminat- 
ing and  widely  interesting.  It  certainly  instructed 
the  writer  of  them,  for  he  did  not  realize,  when  the 
series  began,  how  much  could  be  profitably  said  upon 
the  subject  of  Dow's  theory  of  the  price  movement. 
It  has  led  us  to  an  analysis  of  some  pretentious  theo- 
ries of  what  are  called  "cycles";  to  an  examination 
of  historical  authorities  which  has  shown  us  how  much 
history  could  tell  us  if  the  records  were  intelligently 
compiled,  and  how  little  we  know  of  the  past,  when 
the  importance  of  commerce  in  national  and  world 
development  was  so  little  understood  or  appreciated. 
We  have  reached  also  a  fair  and  dependable  estimate, 
not  only  of  what  the  stock  market  barometer  does, 
but  of  its  limitations.  We  know,  now  at  least,  that  it 
is  not  a  method  of  beating  the  speculative  market — 
not  an  advertised  system  of  stock  trading,  guaranteed 
against  loss. 

Speculation's  Prediction  V alue 

So  far  from  limiting  the  usefulness  of  the  barom- 
eter, this  really  expands  that  usefulness  further  than 


238    THE  STOCK  MARKET  BAROMETER 

could  have  been  expected  when  we  started  to  analyze 
the  triple  movement  of  the  market — its  major  swing 
upward  or  downward;  its  secondary  reaction  or 
rally ;  and  the  never-ceasing  ebb  and  flow  of  the  daily 
fluctuation.  At  least  we  have  evolved  something  of 
real  value  to  the  man  whose  business  is  sufficiently 
extended  to  make  it  necessary  to  foresee  the  general 
current  of  trade.  In  the  chart  of  the  Harvard  Com- 
mittee on  Economic  Research,  for  the  years  from  1903 
to  1914  inclusive,  the  line  of  speculation  is  shown  as 
preceding  the  lines  of  banking  and  business.  This  is 
a  calculation  correctly  extracted  after  the  event,  and 
such  a  chart,  because  of  its  extreme  conservatism  and 
the  numerous  adjustments  made  in  its  construction, 
will  never  reach  the  barometrical  value  of  the  stock 
market  averages  as  recorded  from  day  to  day,  when 
considered  in  the  light  of  Dow's  theory  of  the  triple 
market  movement. 

A  Prophet  Who  Knows  When  to  Stop 

Those  who  make  a  living  by  giving  tips  on  the  stock 
market  are  active  and  conspicuous  when  the  market 
itself  shows  similar  activity.  In  dull  times  they  are 
depressing  folk  to  listen  to  unless  you  have  a  patient 
sense  of  humor.  In  those  quiet  years  between  the 
culmination  of  the  bear  market  of  1910  and  the  out- 
break of  the  Great  War  one  of  them  often  deplored 
to  me  his  inability  to  predict  market  movements  in  a 
market  which  has  ceased  to  show  profitable  fluctua- 
tions. But  our  barometer  has  nothing  to  take  back 


SOME  CONCLUSIONS— 1910-14         239 

or  regret.  It  is  almost  the  only  prophet  of  to-day 
who  stops  talking  when  he  has  nothing  to  say.  From 
the  studies  in  the  price  movement  published  from  time 
to  time  in  The  Wall  Street  Journal  I  have  offered  evi- 
dence that  the  bear  market  in  stocks  of  1910  was 
clearly  foreseen  in  the  latter  part  of  1909.  The  mar- 
ket took  a  turn  for  the  better  after  June,  1910. 

Although  the  recovery  was  slow  and  hesitating  the 
general  trend  was  upward.  There  was  a  secondary 
reaction  of  recognizable  dimensions  about  midsummer, 
1911.  The  top  of  the  main  movement,  however,  was 
in  the  latter  part  of  1912,  and  what  is  most  interesting 
about  the  four  years  before  the  war  is  the  relatively 
small  extent  of  any  of  the  fluctuations.  The  bear 
market  from  the  latter  part  of  1909  until  the  middle 
of  1910  was  well  defined,  but  in  both  averages  was 
of  barely  half  the  extent  of  the  preceding  bear  mar- 
ket in  the  panic  year  of  1907.  The  following  bull 
market,  if  it  attains  quite  that  dignity,  for  it  was 
anything  but  a  boom,  showed  scarcely  a  third  of  the 
range  of  the  preceding  bull  market  which  held  from 
the  autumn  of  1907  to  near  the  end  of  1909.  Alto- 
gether, in  these  instructive  years,  we  can  see  a  general 
dwindling  movement.  Examination  of  business  rec- 
ords for  those  years  will  show  that  there  was  a  cor- 
responding slowing  up  of  activity  in  trade,  not  amount- 
ing to  depression  but  rather  to  a  dull  level  of  business ; 
not  without  the  improvement  to  be  expected  from  the 
country's  natural  growth;  but  in  no  way  conspicuous, 
or  strong  enough  to  stimulate  any  large  volume  of 
speculation. 


240    THE  STOCK  MARKET  BAROMETER 

Predicting  Small  as  well  as  Large  Movements 

Here  again  we  see  another  valuable  function  of  our 
barometer.  The  major  movements  do,  in  this  sense, 
forecast  the  extent  and  almost  the  duration  of  the  com- 
ing improvement,  or  the  depth,  and  even  the  severity, 
of  the  impending  business  depression.  Our  discus- 
sions of  selected  periods  covered  in  our  twenty-five- 
year  chart  have  made  this  sufficiently  clear,  as  anyone 
can  see  for  himself  by  comparing  the  price-movement 
analyses  in  previous  articles  with  the  subsequent  de- 
velopments in  trade.  It  may  be  broadly  said  that 
business  became  dull  in  1910  and  that  it  did  not  re- 
cover its  activity,  in  any  sense  greatly  worth  anticipat- 
ing in  the  speculative  market,  until  the  boom  created 
by  the  war. 

Here  is  a  period,  then,  which  seems  to  raise  a  diffi- 
culty for  the  compilers  of  business  charts,  where  a 
certain  rhythm  is  postulated  as  a  normal  condition 
of  business.  Action  and  reaction  can  hardly  be  called 
equal  in  these  instructive  years,  unless  it  may  be  the 
action  and  reaction  of  the  pendulum  of  a  clock  which 
is  running  down.  Perhaps  that  is  not  a  bad  simile  of 
what  took  place  before  the  war.  It  may  be  said  that 
the  demand  for  war  material  of  all  kinds  wound  up 
our  business  clock  when  it  seemed  to  be  slowing  down. 
This  is  anything  but  accurate;  but  it  gives  a  pictorial 
idea  which  is  useful  if  not  too  rigidly  applied. 

But  from  the  top  of  the  stock  market  in  1909  we 
could  plot  what  might  be  termed,  with  some  show  of 
justice,  a  bear  market  lasting  nearly  five  years.  It 


SOME  CONCLUSIONS— 1910-14        241 

could  be  called,  with  a  little  latitude,  a  plausible  in- 
stance of  that  five-year  major  swing  which  Charles  H. 
Dow  so  hastily  assumed  when  he  first  formulated  his 
theory.  There  had  unquestionably  been  over-rapid 
development  of  the  country's  resources,  and  possibly 
of  its  railroad  resources,  which  had  culminated  in  the 
panic  of  1907.  We  may,  I  think,  cautiously  infer  that 
the  effects  of  such  major  panics  as  that  are  not  all 
dissipated  by  the  subsequent  and  logical  stock  market 
rally;  as,  for  instance,  that  recovery  which  culminated 
in  1909.  We  see  that  the  business  of  readjustment 
took  much  longer. 

Where  the  Cycle  Becomes  Useful 

Here  is  a  case  where  the  "panic-cycle"  theory  be- 
comes useful  (and  it  has  its  proper  place),  even  if  it 
is  altogether  too  vague  for  helpful  application  to  daily 
affairs.  It  is  immensely  interesting  historically,  and 
teaches  real  lessons  when  seen  in  its  true  perspective. 
After  the  panic  of  1873  there  was  some  stock  market 
rally,  but  a  subsequent  general  dwindling  of  business, 
under  entirely  different  conditions  to  those  existing 
to-day  but  sufficiently  like  the  period  we  are  now  dis- 
cussing to  afford  a  useful  parallel.  It  might  almost 
be  said  that  it  was  not  until  the  resumption  of  specie 
payments  (1879)  was  well  in  sight  that  the  business  of 
the  country  picked  up,  going  on  to  that  broader  devel- 
opment which  was  checked  by  the  less  severe  panic  of 
1884. 

In  the  same  way,  the  panic  of  1893  was  followed 


242     THE  STOCK  MARKET  BAROMETER 

by  a  period  of  depression  much  longer  than  that  occu- 
pied in  the  break  in  stocks,  although  there  were  nar- 
rowing fluctuations  up  and  down  which,  if  charted, 
would  look  strikingly  like  those  of  the  years  follow- 
ing the  strong  stock  market  rally  culminating  in  1909. 
Here  we  have  a  uniformity  which  suggests  at  least 
similar  laws,  governing  a  movement  broader  than  that 
of  even  the  major  swing  which  we  have  been  able  to 
deduce  by  the  application  of  Dow's  theory  of  the  stock 
market  movement.  We  can  at  least  see  that  it  is  not 
a  task  of  months  but  of  years  to  restore  confidence 
where  it  has  once  been  successfully  assailed. 

Contracting  Volume  and  Its  Bearing 

It  has  been  pointed  out  already  that  business  in 
stocks  is  always  far  lighter  in  a  bear  market  than  in 
a  bull  market.  Our  twenty-five-year  chart,  recording 
as  it  does  the  monthly  average  of  daily  stock  trading, 
tells  us  that  speculative  business,  in  the  years  1911  to 
1914  inclusive,  was  very  little  if  any  better  in  volume 
than  in  the  four  years  preceding  the  re-election  of 
McKinley.  The  later  period,  here  under  our  consid- 
eration, was  followed  by  the  war  boom,  an  event 
which  upset  all  calculations.  The  Harvard  Committee 
on  Economic  Research  does  not  even  chart  that  period, 
representing  as  it  does  a  set  of  world  conditions  as 
abnormal  as  an  earthquake  or  some  such  natural 
phenomenon. 

And  since  the  war,  and  the  culmination  of  what 
may  be  called  the  deflation  bear  market  in  June-Au 


SOME  CONCLUSIONS— 1910-14        243 

gust,  1921,  the  volume  of  business  has  shown  a  marked 
contraction.  We  are  experiencing  one  of  the  slowest 
and  least  spectacular  bull  movements  of  which  we  have 
any  authentic  record.  Of  the  fact  of  the  bull  market, 
anticipated  in  more  than  one  of  these  articles  when 
published  serially,  there  can  be  no  manner  of  doubt. 
The  recovery  had  extended  in  April,  1922,  to  twenty- 
nine  points  in  the  industrials  and  rather  more  than 
two-thirds  as  much  in  the  railroads,  with  typical  secon- 
dary movements.  In  a  strong  primary  swing  the 
secondary  movement  is  correspondingly  vigorous.  It 
is  noteworthy  that  neither  the  upward  major  swing 
nor  the  secondary  movement  of  1922  has  shown  a 
virility  which  is,  as  yet,  prophetic  of  a  boom  in  busi- 
ness, as  distinguished  from  a  conservative  recovery. 
The  barometer  is  saying  that  some  recovery  is  due, 
but  that  it  will  come  slowly  and  will  take  more  than 
the  usual  time  to  establish  itself.  The  prediction  is 
rather  of  a  bull  market  which  will  not  carry  prices  to 
new  high  records,  to  put  it  mildly,  than  a  spectacular 
movement  which  foreshadows  a  large  and  adventurous 
development  of  our  industrial  resources. 

Throttling  the  Railroads 

Readers  of  Chapter  XVIII,  in  which  the  the  broad 
downward  movement  of  railroad  stocks  over  a  period 
of  sixteen  years  was  considered,  will  easily  recognize 
why  the  extreme  conservatism  of  the  stock  market  at 
present,  even  on  its  recovery,  is  justified.  In  our 
barometer  at  least,  the  twenty  active  railroad  stocks 


244    THE  STOCK  MARKET  BAROMETER 

represent  one-half  of  our  speculative  material  and  rec- 
ord. Our  railroads  represent  the  largest  single  invest- 
ment of  capital  in  this  country,  exclusive  of  farming. 
The  status  of  these  railroads  is  anything  but  reassur- 
ring.  There  is  nothing  to  show  that  more  vexatious 
regulation  may  not  still  further  restrict  their  wealth- 
creating  capacity. 

We  have  falsely  and  foolishly  assumed,  through  our 
legislators,  that  6  per  cent  is  the  very  maximum  of 
earnings  which  should  be  permitted  to  a  railroad  stock- 
holder; while  he  is  to  take  the  risk  of  anything  less, 
down  to  a  receivership.  Obviously  capital  will  never 
go  into  the  development  of  transportation  on  any  such 
terms  as  this.  But  we  cannot  establish  such  utterly  dis- 
couraging conditions  for  one-half  of  the  speculative 
field  without  injuriously  affecting  the  other  half.  Who 
can  foresee  what  politics  may  not  bring  forth  if  we  are 
running  into  that  populistic  condition  which  marked 
the  middle  nineties?  We  are  regulating  capital  out  of 
public  utilities  of  all  kinds.  Who  is  to  say  that  this 
interference  with  the  earning  power  of  capital  will  not 
be  extended  to  the  great  industrial  corporations? 

Politics  in  Industry 

This  is  no  idle  surmise.  It  has  been  so  extended. 
It  certainly  has  not  been  so  exercised  with  any  gain 
to  the  public.  But  the  action  of  the  Department  of 
Justice  against  the  United  States  Steel  Corporation 
(now  abandoned)  shows  what  can  be  done  if  the 
dangerous  theories  of  the  demagogue  are  to  be  forced 


SOME  CONCLUSIONS— 191014         245 

upon  business.  It  is  all  very  well  to  say  that  the  ten- 
dency of  modern  production  is  toward  concentration, 
and  that  commodities  will  ultimately  be  cheaper  under 
one  management,  like  that  of  the  Steel  Corporation, 
than  under  the  score  or  more  separate  enterprises 
comprised  in  that  great  and  beneficent  organization. 
But  if  the  politician's  assumption  that  mere  size  is  in 
itself  an  offense  is  accepted,  as  it  has  undoubtedly  been 
accepted  in  responsible  quarters  in  the  past,  we  may 
well  look  upon  the  course  of  business  in  the  next  half- 
decade  with  serious  misgiving. 

Mr.  Taft's  Inherited  Policies 

It  must  have  been  in  1909  or  early  in  1910  that  I 
saw  President  Taft  at  the  White  House.  I  pointed 
out  to  him  how  the  unrelenting  hostility  toward  the 
railroads,  backed  up  as  it  had  been  by  the  Administra- 
tion itself,  was  paralyzing  railroad  development,  and 
how  our  regulatory  bodies  were  adding  to  the  business 
handicap.  Mr.  Taft  was  sympathetic,  but  cautious. 
He  contended  that  we  could  no  longer  expect  the 
rapid  growth  of  the  past,  based  though  it  had  been 
upon  speculative  hope  made  true  by  great  endeavor. 
But  he  said  that  he  was  inclined  to  believe  that  this 
was  necessarily  the  price  which  must  be  paid  for  the 
security  of  the  public  through  the  regulation  of  these 
great  corporations.  This  was  the  "policy"  he  inher- 
ited from  Roosevelt,  and  yet  it  did  not  satisfy  the 
Progressives  in  1912!  It  was  not  a  long  interview, 
and  that  was  the  end  of  it.  When  Mr.  Taft,  with 


246    THE  STOCK  MARKET  BAROMETER 

his  unimpeachable  honesty,  could  take  that  view,  what 
was  to  be  expected  of  all  the  little  politicians,  in  the 
state  legislatures  and  the  state  regulatory  bodies,  who 
were  paying  off  old  grudges  against  the  railroads, 
regardless  of  the  cost  to  the  public? 

Our  Voluntary  Fetters 

What  is  the  worth  of  these  voluntary  fetters  we 
have  assumed?  Is  it  contended  that  railroad  service 
has  been  improved  by  all  this  meddling?  There  is 
not  a  dining  car  to-day  which  gives  meals  as  good  as 
those  provided  by  Harvey  for  the  Atchison  twenty 
years  ago.  The  "standard  railroad  meal,"  established 
by  Mr.  McAdoo,  is  recalled  like  a  nightmare  by  its 
victims.  The  railroads  have  not  recovered  the  old 
level  of  service.  Both  the  Pennsylvania  and  the  New 
York  Central  once  were  able  to  cut  the  time  between 
New  York  and  Chicago  to  sixteen  hours.  But  that 
time  has  now  lengthened  to  twenty  and  twenty-two 
hours.  Are  the  cars  any  more  comfortable  than  they 
were?  Are  the  railroad  servants  any  more  civil  and 
obliging?  When  the  railroads  could  discharge  an 
employee  for  not  keeping  a  car  clean  without  risking 
an  interminable  inquiry  before  the  Labor  Board,  the 
cars  were  kept  clean.  But  we  have  legislated  and 
regulated  the  spirit  of  service  out  of  the  railroads. 
Only  in  a  half-hearted  way  are  they  competing  in  mak- 
ing their  own  route  more  attractive  than  that  of  their 
neighbors.  What  inducement  is  there  for  the  rail- 
roads to  spend  capital  in  developing  such  attractions? 


SOME  CONCLUSIONS— 1910-14        247 

Congress  has  said  that  they  will  be  robbed  of  any 
return  from  so  wise  an  investment  if  it  exceeds  a  purely 
arbitrary  figure  of  6  per  cent — one  which  makes  no 
real  provision  for  growth  out  of  the  earnings. 

A  True  Psychological  Condition 

We  are  not  wandering  from  the  point.  We  are 
tracing  one  of  the  causes  of  the  most  significant  move- 
ment shown  in  our  averages.  You  cannot  hit  the  rail- 
roads without  hitting  everything  else,  because  the 
manufacturers  of  railroad  supplies,  as  represented  in 
the  imposing  list  of  the  Railway  Business  Association, 
constitute  a  part  of  our  national  manufacturing  indus- 
try so  large  that  it  swings  all  industry  with  it.  If 
there  is  one  word  which  has  grown  wearisome,  from 
constant  use  and  misuse  in  the  era  of  quackery  from 
which  we  are  only  slowly  emerging,  that  word  is  "psy- 
chology." But  here  is  a  true  psychological  condition. 
We  have  lost  trust  in  ourselves.  We  have  meddled 
so  disastrously  with  the  law  of  supply  and  demand 
that  we  cannot  bring  ourselves  to  the  radical  step  of 
letting  it  alone. 

You  cannot  have  real  freedom  in  a  country  where 
you  have  no  freedom  in  business.  There  is  no  tyranny 
so  hard,  because  none  so  stupid,  ,as  that  of  bureaucracy. 
Fake  a  single  illustration :  President  Rea  of  the  Penn- 
sylvania, not  so  long  ago,  asked  me  how  many  reports 
I  supposed  his  railroad  made  to  departments  in  Wash- 
ington, principally  the  Interstate  Commerce  Commis- 
sion, in  a  single  year  ?  Knowing  how  ample  that  rail- 


248     THE  STOCK  MARKET  BAROMETER 

road's  reports  are,  I  said  that  it  might  be  safe  to  take 
five  hundred  a  year,  as  all  that  were  really  needed, 
and  multiply  that  figure  by  twenty;  and  ventured,  on 
that  basis,  an  estimate  of  ten  thousand  reports  for  a 
single  year.  Mr.  Rea  laughed  ruefully.  He  said, 
"Last  year  we  made  one  hundred  and  fourteen  thou- 
sand reports  for  our  lines  east  of  Pittsburgh  alone  1" 

A  Reform  or  a  Revolution?, 

And  that  was  for  part  of  one  railroad!  Multiply 
that  by  all  the  railroads  in  the  country  and  see  what 
bureaucratic  red  tape  can  do  in  tying  up  a  great  utility's 
service  and  impairing  its  efficiency.  We  have  just 
begun,  thanks  to  General  Dawes,  to  import  a  little 
common  sense  into  Washington  business  methods.  But 
manifestly  he  has  only  scratched  the  surface.  The 
reform  which  is  needed  almost  amounts  to  a  revolu- 
tion, for  we  are  to  remember  that  the  Department  of 
Commerce  and  the  Department  of  Labor,  to  name 
only  two,  are  making  their  demands  for  more  light  and 
more  figures,  more  stationery  and  more  wasted  time, 
upon  the  general  business  of  the  country. 

One  Handicap  and  Its  Consequences 

It  is  a  self-imposed  handicap.  We  have  only  our- 
selves to  thank.  Look  at  what  I  have  recorded  of 
President  Taft's  acceptance  of  the  position  twelve 
years  ago.  Who  is  to  take  the  Old  Man  of  the  Sea 
ofi  Sinbad's  shoulders?  How  can  we  expect  a  general 


SOME  CONCLUSIONS— 1910-14        249 

boom  in  business,  or  a  restoration  of  the  railroads  to 
their  old  conditions  of  vigor  and  growth,  so  long  as 
the  politician  can  inflict  such  handicaps  as  these?  We 
are  all  hit  by  it.  It  hits  the  farmer  in  Nebraska,  who 
is  burning  corn  because  it  works  out  cheaper  per  ton 
than  coal.  It  is  hitting  our  foreign  trade.  Ours  are 
the  largest  coal  resources  in  the  world,  but  Great 
Britain  is  actually  landing  coal  in  this  country.  She 
has  already  supplanted  us  where  we  were  able,  through 
the  war,  to  build  up  foreign  trade.  The  attitude  of 
Congress  toward  business  is  not  merely  a  develop- 
ment of  the  insane  prejudice  against  the  railroads. 
It  amounts,  when  analyzed,  to  the  bolshevist  idea  of 
fettering  success — of  making  large  individual  wealth 
impossible.  Enterprise  will  be  attacked  in  the  legis- 
latures, not  because  there  is  a  speculative  danger  but 
because,  in  the  development  of  the  country,  some  indi- 
viduals may  grow  rich.  You  cannot  keep  those  indi- 
viduals poor  without  keeping  the  country  poor.  Are 
we  to  try  again  the  experiment  which  was  made  during 
the  second  Cleveland  administration?  Is  that  era  of 
Populism  and  depression,  of  entire  lack  of  confidence 
or  trust  in  ourselves,  what  we  shall  run  into  when  the 
present  bull  market  culminates  and  begins  to  give 
signals  on  the  bear  side? 


Chapter  XXI 

RUNNING  TRUE  TO  FORM,  1922-1925 

WHEN  The  Stock  Market  Barometer  first  ap- 
peared serially  in  the  columns  of  Barren's, 
mostly  in  the  latter  part  of  1921,  the  order  of  the  chap- 
ters adopted  in  the  subsequent  publication  of  the  book 
was  not  used.  Indeed,  this  study  of  Dow's  theory  of 
the  price  movement  did  not  start  out  with  the  intention 
of  making  a  book  of  itself.  It  was  what  an  incurable 
newspaper  man  like  myself  would  call  a  newspaper 
assignment.  It  partook,  to  some  extent,  of  the  charac- 
ter of  contemporary  criticism.  This  is  curiously  true 
of  one  of  the  most  important  chapters,  the  fifteenth, 
"A  Line  and  an  Example — 1914."  That  article  was 
submitted  to  the  editor  of  Barren's  with  an  entirely 
different  line  for  illustration. 

A  "Line"  in  Illustration 

All  students  of  the  averages  will  remember  the  broad 
rule  that  a  "line"  in  the  daily  average  indicates  distribu- 
tion or  accumulation;  and  that  after  either  saturation 
or  scarcity  has  come  about  the  movement  of  the  aver- 
ages above  or  below  the  line  gives  an  important  in- 
dication of  the  future  movement  of  the  market.  Ob- 
viously, their  advance  above  a  "line"  representing 
many  days'  trading  and  all  within  a  range  of  three 

250 


RUNNING  TRUE  TO  FORM,  1922-1925     251 

points  or  so  indicates  that  the  floating  supply  of  stocks 
has  been  exhausted  and  that  it  is  necessary  to  bid  up 
in  order  to  tempt  a  new  volume  of  selling.  Con- 
versely, a  movement  below  that  line  indicates  the 
familiar  saturation  point,  where  the  clouds  resolve 
themselves  into  rain.  There  follows  a  marked  reces- 
sion in  the  market,  to*  a  point  where  stocks  once  more 
become  attractive  to  buyers. 

That  fifteenth  chapter  was  submitted  to  the  editor 
of  Barren's  at  the  bottom  of  a  major  bear  movement. 
The  line  first  chosen  for  illustration  was  that  which 
was  then  in  the  making.  He  considered  such  predic- 
tion altogether  too  daring,  although  I  was  willing 
enough  to  put  Dow's  theory  and  my  conception  of  it 
to  the  hazard  of  such  a  test.  The  result  would  have 
been  a  remarkable  vindication  of  the  theory.  But  coun- 
sels of  prudence  prevailed  and  the  illustrative  line 
taken  shows  the  action,  or  rather  the  inaction,  of  stocks 
during  May,  June  and  July  of  1914,  before  the  out- 
break of  the  World  War.  There  can  be  no  question 
that  the  illustration  chosen  was  the  right  one,  both  for 
historical  purposes  and  for  the  subsequent  authority 
of  the  book,  which  has,  to  my  gratification,  assumed  a 
position  of  its  own,  with  several  times  the  circulation 
which  the  cautious  publishers  anticipated. 

What  is  true  enough  to  have  become  familiar  and, 
therefore  unimpressive,  is  that  the  book  itself  applied 
Dow's  theory  to  an  actual  market  and  predicted,  in  the 
most  positive  way,  the  major  bull  movement  which  set 
in  during  the  time  of  publication,  serially,  in  the  col- 
umns of  Barren's.  I  have  been  asked  to  bring  the  topic 


252  THE  STOCK  MARKET  BAROMETER 

down  to  date  for  this  new  edition,  pointing  out  how  the 
theory  has  been  verified,  or  modified,  in  the  three  years 
which  have  elapsed  since  The  Stock  Market  Barom- 
eter was  first  published.  The  topic  should  be  inter- 
esting and  useful,  and  I  hope  that  a  lifelong  sense  of 
humor  will  keep  me  from  indulging  in  boasts  about  my 
inspiration  as  a  prophet,  even  if  it  is  necessary  to 
furnish  a  few  illustrations,  from  these-  columns  and 
those  of  The  Wall  Street  Journal,  of  the  way  in  which 
the  application  of  Dow's  theory  has  been  successsfully 
made  since  1922. 

Some  Successful  Forecast 

Since  the  publication  of  The  Stock  Market  Barom- 
eter the  market  has  experienced  a  major  upward 
(bull)  movement  in  which  the  industrials,  between 
Aug.  24,  1921,  and  March  20,  1923,  advanced  over  61 
points,  while  the  railroads  between  June  20,  1921,  ad- 
vanced from  65.52  to  93.99  on  Sept.  n,  1922,  or  28.47 
points,  and  had  only  lost  about  three  points  of  this 
when  the  high  point  of  the  industrials  was  recorded  in 
the  following  March.  The  Wall  Street  Journal  and 
Barren's  were  both  entirely  clear  on  this  bull  move- 
ment, the  former  saying,  on  Feb.  n,  1922:  "At  present 
the  major  swing  of  the  market  is  upwards."  The  final 
paragraph  of  that  study  is  significant: 

"The  answer  to  inquirers,  therefore,  is  that  we  are  still  in  a 
bull  market  and  that  it  should  run  much  further,  possibly  well 
into  1923,  and  certainly  for  a  time  well  beyond  the  improve- 
ment in  general  business  which  it  forecasts," 


RUNNING  TRUE  TO  FORM,  1922-1925     253 

That  was  sufficiently  explicit,  not  merely  as  regards 
the  movement  of  the  stock  market  interpreted  by  the 
Dow  theory  but  upon  the  improvement  in  general  busi- 
ness which,  in  due  course,  followed  the  rise  in  the 
barometer.  When  the  twenty  industrials  had  advanced 
26  points,  or  in  the  following  June,  it  was  said :  "There 
is  no  reason  to  suppose  that  the  present  bull  market 
is  within  months  of  its  culmination."  Remember  that 
the  bull  movement  really  ran  into  March,  1923.  The 
presence  of  a  line  was  noted  May  8,  1922,  although  no 
bearish  inference  was  drawn.  On  the  22nd  of  May  the 
resumption  of  the  bull  movement  was  noted,  while  its 
continuance  "well  into  1923"  was  again  inferred.  I 
note  that  in  an  interview  given  in  Boston  on  June  16 
I  repeated  the  conviction  that  the  stock  market  was 
likely  to  run  further  in  the  upward  direction  and  that 
it  would  be  all  the  better  for  the  secondary  reaction 
which  had  occurred  about  that  time.  A  tendency  to 
check  in  the  railroad  averages  was  noted  in  the  "Study 
in  the  Price  Movement"  published  July  8,  but  it  was 
then  said:  "With  this  proviso  it  may  be  said  that  the 
indication  in  the  averages  is  distinctly  bullish." 

'A  Secondary  Reaction 

It  has  been  said  elsewhere  in  these  pages  that  the 
prediction  of  secondary  reactions  is  a  chancy  sort  of 
business  and  is  not  here  encouraged  although  in  Sep- 
tember The  Wall  Street  Journal  and  Barren's  rather 
looked  for  a  reaction,  recognizing  it  on  September  19. 
This  may  be  called  merely  a  good  guess,  by  the  scoffer, 


254  THE  STOCK  MARKET  BAROMETER 

especially  if  he  was  wrong  on  the  market,  but  at  any 
rate  on  September  30  the  industrials  had  reacted  nearly 
six  points  from  the  high  of  the  bull  movement  and 
the  railroads  more  than  four  points.  On  October  18 
the  "Study  in  the  Price  Movement"  said: 

"The  stock  market  today,  after  a  typical  secondary  reaction, 
is  pointing  clearly  to  the  resumption  of  the  major  upward  move- 
ment which  developed  in  August,  1921." 

It  would  be  wearisome  to  recall  all  such  predictions. 
I  prefer  to  call  them  inferences.  The  bullish  infer- 
ence was  again  drawn  on  November  3.  As  late  as 
Jan.  16,  1923,  the  "extended  but  by  no  means  unpre- 
cedented secondary  reaction"  was  discussed,  but  the 
primary  upward  movement  was  shown  still  to  dominate. 

A  Short  Bear  Movement 

For  purposes  of  convenience  the  short  major  bear 
swing  may  be  said  to  have  set  in  after  the  top  of  the 
industrials  was  reached  in  March,  1923.  On  April  4 
the  "Study  in  the  Price  Movement"  called  attention  to 
a  bearish  indication  from  the  line  of  distribution. 
Taken  all  through,  the  bear  market  did  not  last  long, 
and  it  is  noteworthy  that  while  the  studies  in  "the 
Price  Movement"  were  bearish  they  were  slow  to  con- 
cede the  primary  reaction,  evidently  influenced  by  the 
fact  that  the  previous  bull  movement  had  been  de- 
cidedly slow.  The  decline  continued  to  look  rather  like 
a  secondary  reaction  in  a  bull  market.  The  total  re- 
cession worked  out  to  20  points  in  the  industrials,  cul- 


RUNNING  TRUE  TO  FORM,  1922-1925     255 

minating  Oct.  27,  1923,  as  far  as  the  industrials  were 
concerned,  while  at  that  date  the  railroads  were  down 
rather  more  than  17  points,  although  the  actual  low 
had  been  early  in  the  previous  August.  Rather  for 
convenience  of  record  this  conspicuously  short  bear 
movement  has  been  taken  as  primary,  but  a  plausible 
case  might  be  put  up  for  dating  the  present  bull  market 
from  the  turn  in  1921,  when  The  Stock  Market 
Barometer  was  appearing  serially  and  was  even 
charged  with  being  indelicately  bullish. 

Influence  of  Taxes 

What  was  unquestionably  a  new  influence  in  the 
stock  market  had  made  itself  felt  in  the  averages. 
Congress  had  been  in  session  all  summer  and  on  Aug. 
29,  1923,  The  Wall  Street  Journal  had  a  careful  study 
of  the  way  politics,  by  dangerous  interference  with 
business,  had  falsified,  or  to  a  large  extent  neutralized, 
the  very  barometers  of  business  itself.  Income  tax 
and  surtax  were  then  at  their  highest  points  and  The 
Wall  Street  Journal  said : 

"There  is  a  reason  why  the  barometer  in  the  past  few  months 
has  been  deflected  by  an  influence  not  felt  before  in  a  major 
bull  market.  This  influence  undoubtedly  is  the  cumulative 
effect  of  the  income  surtax. 

"Brokers  can  tell  how  steadily  the  dividend-paying  common 
stocks,  representing  thirty  out  of  the  forty  taken  in  the  two 
averages,  have  been  sold  by  large  holders  on  any  development 
of  comparative  strength.  It  is  correct  to  call  this  a  new  factor, 
although  it  has  been  germinating  since  the  bull  market  started 
in  the  autumn  of  1921.  The  whole  theory  of  the  stock  market 


256  THE  STOCK  MARKET  BAROMETER 

barometer  is  based  upon  the  assumption  that  pressure  on  stocks 
can  only  forecast  coming  liquidation  of  general  business.  But 
here,  for  the  first  time  in  the  history  of  the  averages,  is  a  pressure 
of  stock  for  sale  which  bears  no  reference  to  coming  events. 

"It  is  as  though  a  hot  coal  or  a  lump  of  ice  had  been  applied 
to  the  bulb  of  a  thermometer.  If  it  is  too  much  to  hope  that 
Congress  may  see  a  return  to  sanity  in  taxation,  this  is  a  con- 
dition which  will  nevertheless  cure  itself,  but  only  over  a  period 
of  time  beyond  present  calculation.  That  stage  will  be  reached 
when  every  one  of  the  twenty  active  railroad  common  stocks 
and  the  twenty  industrials  is  as  widely  held  as  the  stock  of  the 
Pennsylvania  Railroad,  where  the  average  holding  is  round 
about  fifty  shares  per  stockholder. 

"A  rich  man  cannot  afford  to  hold  a  common  stock  returning 
him  six  per  cent,  on  its  cost.  Not  only  is  he  liable  to  see  more 
than  half  of  the  return  deducted  by  the  taxgatherer;  such  a 
holding  pulls  up  the  tax  he  must  pay  on  all  his  other  income. 
He,  therefore,  has  been  a  steady  seller  for  many  months  past, 
and  this  is  'inside'  selling  with  a  vengeance.  It  is  well  informed 
selling,  in  a  way,  but  obviousy  it  need  not  predict  the  general 
course  of  business.  Congress,  in  imposing  impossible  taxes,  has 
not  merely  laid  a  handicap  on  the  country's  business.  It  has 
falsified  the  very  barometer  of  business." 

That  temporary  influence  is  now  in  course  of  removal 
so  far  as  Congress  is  concerned  but  the  State  taxes 
must  have  some  not  entirely  negligible  effect. 

rA  New  Bull  Market 

It  would  be  hypocritical  to  say  that  I  have  really 
wished  I  had  never  written  The  Stock  Market  Barom- 
eter. It  is  true  to  say  that  I  have  witnessed  with 
regret  the  way  in  which  crude  adaptations  of  Dow's 
complete  theory  have  been  taken  by  tipsters  and  mar- 
ket quacks  to  bolster  up  their  unsound  conclusions, 
drawn  from  an  incomplete  understanding  of  the  prin- 


RUNNING  TRUE  TO  FORM,  1922-1925    257 

ciples  involved  in  reading  the  averages.  On  Feb.  4, 
1924,  after  refraining,  in  disgust  at  the  clamor  of  tip- 
sters, from  discussing  the  price  movement  editorially, 
The  Wall  Street  Journal  said: 

"On  the  method  of  reading  the  averages  which  is  known  as 
Dow's  theory,  the  stock  market  is  in  a  major  bull  movement, 
after  the  shortest  major  bear  movement  of  record,  one  lasting 
barely  eight  months.  So  far  as  the  low  of  the  present  move- 
ment is  concerned,  it  would  presumably  date  from  November  I ; 
but  the  bull  point  was  given  after  both  the  industrial  and  rail- 
road averages  had  made  one  of  the  most  consistent  lines  of 
accumulation  on  record,  emerging  on  the  bull  side  last  Decem- 
ber  (1923)." 

It  was  noted  there,  as  an  eminently  satisfactory  rea- 
son for  a  bull  market,  that  stocks  were  selling  well 
below  the  line  of  values  and  had  not  discounted  the  pos- 
sibilities of  legitimate  business  expansion.  Here  again 
the  barometer  was  right.  The  business  expansion  came 
in  due  course,  slackening  in  the  latter  part  of  the  year. 
This  was  curiously  matched  by  a  substantial  secondary 
reaction  in  both  averages  from  the  high  in  the  indus- 
trials of  105.57  on  August  20  to  the  low  of  99.18 
recorded  October  14,  paralleled  by  a  reaction  of  more 
than  six  points  in  the  railroads,  the  averages  having 
seen  the  low  of  that  movement  on  October  14. 

Since  that  time  the  bull  movement  has  been  in  full 
swing,  developing  great  activity  immediately  after  the 
election,  when  a  number  of  stock  tipsters  advised  taking 
profits,  and  selling  the  market  short,  on  the  theory  that 
"the  good  news  was  out."  As  the  real  odds  were 
something  like  forty  to  one  that  £oolidge  would  beat 


258  THE  STOCK  MARKET  BAROMETER 

Davis, — they  were  openly  twelve  to  one  before  the 
election — the  "good  news"  was  really  the  resumed  ex- 
pansion of  general  business  which  the  market  barom- 
eter had  been  predicting. 

TA  Changed  Technical  Condition 

There  is  a  technical  condition  which  has  developed 
in  the  present  bull  market  and  one  which  did  not  exist 
before.  Here  is  substantially  what  I  have  had  to  say 
about  it  in  another  place : 

Studies  of  the  stock  market,  based  upon  Dow's  well 
known  theory  of  the  triple  market  movement  as  dis- 
closed by  the  average  prices  of  the  industrials  and  the 
railroads  taken  separately  for  comparison,  have  been 
astonishingly  right  in  forecasting  the  broad  upward 
movement  of  the  stock  market  and  indicating  its  con- 
tinuance. The  present  major  bull  market,  however,  is 
subject  to  a  condition  which  did  not  exist  before,  and 
it  is  important  to  consider  the  bearing  of  that  limi- 
tation. 

While  the  Stock  Exchange  Governing  Committee 
has  been  strengthening  its  control  over  the  conduct  of 
business  for  a  good  many  years  past  and  certainly  since 
the  time  when  the  unlisted  department  was  abolished, 
the  more  stringent  regulation  has  been  of  entirely  re- 
cent development.  It  has  only  been  in  the  past  year 
or  two  that  the  governors  have  assumed  to  tell  the 
strongest  brokerage  houses  how  much  of  an  account 
they  may  carry  on  their  capital.  In  the  not  very  old 
days  a  Stock  Exchange  house  took  all  the  sound  busi- 


RUNNING  TRUE  TO  FORM,  1922-1925    259; 

ness  it  could  get,  trusting  to  its  own  ingenuity  to  find  a 
means  of  carrying  an  expanded  account  in  a  big  bull 
market. 

This  has  been  drastically  changed,  and  it  is  now  an 
open  secret  that  a  considerable  number  of  brokerage 
houses  are  carrying  for  customers  all  the  stock  the  Ex- 
change's law  allows.  Their  position  is  eminently  safe, 
but  their  policy  is  obviously  changed.  The  way  to 
make  money  in  a  bull  market  is  to  buy  what  you  can 
afford  when  the  upward  movement  is  fairly  assured,  ex- 
pand your  bull  account  on  the  profits,  hold  on  to  the 
larger  part  of  your  interest,  selling  in  periods  of 
marked  strength,  and  making  up  to  the  proportion  you 
can  afford  in  the  inevitable  secondary  reactions. 

But  this  is  not  the  kind  of  customer  a  Stock  Exchange 
house  wants.  It  means  the  tying  up  of  a  substantial 
amount  of  capital,  with  commissions  for  purchases  or 
sales  only  earned  once  in  a  few  weeks.  The  broker 
likes  the  customer  to  pay  commissions  every  day,  al- 
though it  is  anything  but  profitable  to  the  latter,  be- 
cause the  attempt  to  guess  the  daily  fluctuation  is  faf 
more  like  gambling  than  speculation. 

One  result  of  the  broker's  new  limitations  is  that 
stock  in  small  quantities  has  been  widely  bought  for 
cash  and  that  wealthy  customers  are  financing  their 
own  bull  account  through  their  own  bankers  in  many 
parts  of  the  country  outside  New  York.  This  leaves 
some  uncertainty  as  to  the  real  extent  of  the  bull  ac- 
count, but  also  a  hitherto  unknown  degree  of  stability, 
because  there  is  less  likelihood  of  a  flood  of  selling 
orders  all  at  one  time. 


260  THE  STOCK  MARKET  BAROMETER 

In  the  natural  way  of  evolution  the  result  will  prob- 
ably be  to  concentrate  business  among  fewer  houses, 
each  with  a  much  larger  working  capital  than  has 
hitherto  been  considered  necessary.  What  is  at  least 
certain  is  that  there  is  nothing  in  the  new  condition 
to  change  the  rules  for  reading  the  stock  market 
barometer. 

Barometrical  Indications 

It  would  be  timid  to  conclude  this  discussion  with- 
out saying  what  I  think  of  the  barometrical  indications 
writing  in  August,  1925.  There  is  obviously  a  strong 
and  well  distributed  bull  account,  and  there  is  abso- 
lutely no  indication  in  the  averages  that  the  bull  market 
has  culminated.  Counting  from  the  end  of  the  short 
bear  market  in  the  latter  part  of  1923,  the  duration  of 
the  major  swing  has  not  been  long  and  there  are  still 
many  stocks  which  are  demonstrably  selling  below  the 
line  of  values.  I  think  this  assumption,  if  we  could 
calculate  an  average  line  of  values,  would  be  true  of 
the  railroad  and  partly  true  of  the  industrial  groups, 
in  spite  of  their  considerable  advance. 

All  indications  point  to  a  further  upward  movement 
carrying  into  next  year,  although  secondary  reactions 
of  substantial  proportions  would  be  very  much  in  order. 

Nothing  has  developed  since  the  first  publication  of 
The  Stock  Market  Barometer  to  shake  my  faith  in 
the  great  utility  of  a  common-sense  interpretation  of 
the  price  movement.  It  may  be  valueless  for  individual 
stocks,  except  that  these  do  not  commonly  make  serious 


RUNNING  TRUE  TO  FORM,  1922-1925     261 

advances  except  when  the  general  trend  of  the  market 
is  upwards.  The  one  chosen  by  the  speculator  may 
lag  behind  and  never  catch  up.  I  am  not  greatly  in- 
terested in  encouraging  people  to  speculate  in  Wall 
Street,  but  I  am  humbly  gratified  that  the  business  of 
the  country  has  had  its  attention  drawn  to  such  a 
barometrical  guide.  It  has  been  freely  criticised  by 
authorities  of  some  weight,  but  has  continued  its  useful 
service  to  the  general  business  of  the  country. 


Chapter  XXII 

SOME  THOUGHTS   FOR  SPECULATORS 

MANY  years  ago  one  of  the  Southern  states, 
which  need  not  be  otherwise  identified,  had  a 
law  which  prohibited  the  playing  of  games  of  chance 
where  any  stake  was  involved.  It  need  hardly  be  said 
that  a  law  so  foolish  was  "more  honored  in  the  breach 
than  the  observance."  The  sheriff  of  one  of  the  smaller 
towns,  however,  determined  to  enforce  the  law  and 
captured  a  party  of  young  men  playing  euchre  in  a 
barn.  Courts  were  not  overburdened  with  formalities 
in  those  days.  It  was  not  considered  out  of  the  way, 
or  a  departure  from  dignity,  when  counsel  for  the 
prisoners,  while  admitting  that  his  "unfortunate  cli- 
ents" had  been  playing  euchre,  submitted  that  it  was 
not  a  game  of  chance.  As  the  court  and  the  gentle- 
men of  the  jury  habitually  played  the  game  them- 
selves, the  contention  was  received  with  incredulity. 
Nothing  daunted,  however,  the  counsel  for  the  defense 
said:  "If  your  honor  will  allow  me  to  demonstrate 
the  game  to  the  jury  for  a  short  time  I  am  sure  I  can 
convince  them  that  euchre  is  not  a  game  of  chance." 

Not  a  Game  of  Chance 

This  seemed  eminently  fair,  and  the  jury  and  the 
lawyer  were  accordingly  locked  up  together.     In   a 

26z 


SOME  THOUGHTS  FOR  SPECULATORS    263 

short  time  various  members  of  the  jury  sent  out  to 
borrow  a  little  change  from  their  friends.  After  an 
hour  or  so  of  "demonstration,"  the  jury  returned  to 
court  with  the  unanimous  verdict  that  euchre  was  not 
a  game  of  chance. 

These  articles  would  not  be  complete  if  I  did  not 
say  something  about  speculation  and,  incidentally,  give 
some  practical  counsel  to  the  speculator.  Speculation 
necessarily  involves  a  large  element  of  chance.  It  is 
the  speculator  himself  who  too  often  makes  it  a  sheer 
gamble.  I  do  not  know  what  the  Southern  lawyer  in 
the  story  did  to  convince  the  jury  of  the  certainties 
underlying  the  game  of  euchre.  But  certainly,  if  the 
amateur  is  to  come  into  Wall  Street  and  "speculate" 
with  the  stupidity  he  so  frequently  exhibits,  the  profes- 
sionals there  can  show  him  that  his  kind  of  specula- 
tion is  not  a  game  of  chance,  and  they  will  not  havt! 
to  cheat  to  do  so. 

Real  Protection  in  the  Barometer 

It  cannot  too  often  be  said  that  Dow's  theory  of 
the  stock  market  movement  is  not  a  "system"  for 
beating  the  market — a  get-rich-quick  scheme  which 
converts  the  Wall  Street  district  into  a  sort  of  Tom 
Tiddler's  ground,  where  any  man  with  a  few  dollars 
for  margin  can  pick  up  gold  and  silver.  But  if  the 
intelligent  speculator  of  to-day  (who  in  many  cases  is 
the  intelligent  investor  of  to-morrow)  cannot  find 
means  of  protecting  himself  in  the  stock  market  by  an 
earnest  study  of  the  stock  market  barometer,  then 


264    THE  STOCK  MARKET  BAROMETER 

these  chapters  have,  in  that  respect,  failed.  He  has 
already  gained  something  tangible  if  he  has  correctly 
understood  the  major  movement.  If  he  comes  into 
Wall  Street  on  a  mere  tip  from  somebody  he  trusts 
about  a  stock  of  which  he  never  heard  before,  without 
ascertaining  whether  the  general  market  is  in  an  up- 
ward or  a  downward  major  swing,  he  stands  an  excel- 
lent chance  of  losing  all  he  brings  in  the  way  of 
margin,  without  a  fair  "run  for  his  money."  But  if 
he  has  learned  what  the  market  movement  means  and 
appreciates  the  opportunity  given  to  him  in  the  dulness 
after  a  typical  reaction  in  a  bull  market,  he  stands 
more  than  an  even  chance  of  making  a  profit.  That 
profit  will  depend  on  a  number  of  considerations  which, 
apparently,  do  not  enter  into  the  minds  of  many  people 
who  come  to  Wall  Street  only  to  lose  money,  spend- 
ing the  rest  of  their  lives  denouncing  the  Stock  Ex- 
change as  a  gambling  hell. 

Speculation  and  Gambling 

To  these  people  all  stocks  look  alike.  But  they  are 
not  alike.  So  far  as  well-protected  speculation  is  con- 
cerned, there  is  all  the  difference  in  the  world  between 
such  a  stock  as  United  States  Steel  common,  with  a 
well-established  market — a  stock  well  distributed  and 
widely  held — and  the  latest  motor  or  oil  proposition 
floated  on  the  Curb  for  the  purpose  of  distribution. 
The  latter  may  be  good,  but  it  is  at  least  untested, 
not  only  as  regards  the  business  the  new  company 
purposes  doing,  but  in  the  market  aspect  of  its  stock. 


SOME  THOUGHTS  FOR  SPECULATORS    265 

It  is  a  sound  general  rule  that  the  outsider,  when  he 
buys  a  Curb  stock,  should  do  so  outright.  His  pur- 
chase on  margin  is  largely  in  the  nature  of  a  gamble. 
I  am  not  laying  down  any  law  about  the  morality  of 
gambling.  Unless  it  comes  under  the  head  of  covet- 
ousness,  I  do  not  know  of  any  commandment  against 
it;  and,  like  an  Episcopalian  bishop  of  my  acquaint- 
ance, with  whom  I  have  played  auction  bridge  for 
small  cash  points,  I  am  not  in  the  business  of  inventing 
new  sins.  But  margin  trading  in  a  security  of  which 
the  amateur  trader  knows  nothing  that  he  has  not  had 
at  second  hand,  in  a  market  which  only  exists  artifi- 
cially by  the  manipulation  of  people  who  want  to  sell 
the  stock,  is  the  merest  gambling.  The  man  who 
chooses  to  speculate  in  it  should  regard  his  venture  as 
on  the  same  level  with  a  bet  on  a  horse  race.  He 
should  see  that  his  loss  is  limited  to  such  amount  as 
he  could  afford  to  lose  on  a  bet. 

Speculation  is  a  different  matter,  and  I  hope  the 
day  will  never  come  when  the  speculative  instinct  is 
not  at  least  latent  in  an  American's  mind.  If  ever 
that  day  does  come,  if  ever  prohibition  extends  to  the 
taking  of  a  chance  involving  the  risk  of  whole  or  par- 
tial loss,  the  result  may  be  "good"  Americans,  but 
of  a  merely  negative  type  of  goodness.  If  as  you 
enter  Wall  Street  you  will  pause  a  moment  in 
Broadway,  to  look  through  the  railings  of  Trinity 
churchyard,  you  will  see  a  place  full  of  good  Ameri- 
cans. When  speculation  is  dead  this  country  will  be 
dead  also. 


266    THE  STOCK  MARKET  BAROMETER 

Selecting  a  Stock 

Let  us  suppose,  then,  that  the  outsider  has  consid- 
ered the  character  of  the  major  movement  and  ten- 
dency of  the  stock  market.  His  next  business  is  to 
select  his  stock.  Here  again  the  amateur,  who  wants 
quick  action  for  his  money,  will  not  take  the  trouble 
to  inform  himself  properly  upon  the  stock  in  which  he 
purposes  to  risk  his  small  capital. 

It  is  a  good  standing  rule  that  in  a  stock  for  which 
no  permanent  market  has  been  created — a  new  flota- 
tion or  one  which  is  still  notoriously,  by  majority  hold- 
ings, in  control  of  the  people  who  dictate  the  policies 
of  the  corporation — the  small  speculator  should  not 
trade  on  margin  at  all.  This  is,  of  course,  a  counsel  of 
perfection,  but  at  least  he  should  make  it  a  rule  to  take 
only  a  small  risk  in  such  a  venture  and  to  buy  only  what 
he  can  in  some  way  finance  himself  if  necessary. 

By  the  time  a  stock  is  listed  in  the  Stock  Exchange 
there  is  generally  a  dependable  market  for  it  at  most 
times  although  here  the  danger  of  too  much  owner- 
ship in  few  hands,  as  in  the  case  of  Stutz  Motor,  still 
exists.  Such  stocks  are  good  to  let  alone;  and  only 
where  the  nature  of  the  speculator's  own  business  gives 
him  access  to  special  information  should  he  embark 
his  money  in  stocks  of  such  a  character,  and  even  then 
his  margin  should  be  of  the  most  ample  kind. 

On  the  Matter  of  Margin 

This  brings  us  to  the  question  of  margins.  A  com- 
plete misunderstanding  of  what  constitutes  a  sufficient 


SOME  THOUGHTS  FOR  SPECULATORS    267 

margin  is  responsible  for  many  needless  losses  in  Wall 
Street.  Brokers  are  looking  for  business,  and  they 
tell  the  tyro  that  ten  points  margin  is  good  enough  if 
he  can  guarantee  the  firm  that  amount  against  fluctu- 
ations. This  would  mean  $1000  on  one  hundred 
shares  of  stock  at  par.  That  margin  is  not  enough,  or 
nearly  enough.  Writing  twenty-one  years  ago,  Charles 
H.  Dow  pointed  out  that  "the  man  who  buys  a  hun- 
dred shares  on  a  10  per  cent  margin,  and  stops  his 
loss  at  2  per  cent,  has  lost  (with  commissions)  nearly 
one-quarter  of  his  capital."  Obviously  it  does  not 
take  long  to  wipe  him  out.  Dow  was  ultra-cautious, 
but  he  was  not  wide  of  the  mark  when  he  said  that  if 
such  a  man  had  begun  with  ten-share  lots  he  would 
have  been  able  to  see  a  substantial  loss  and  yet  have 
averaged  his  purchases  to  yield  him  an  ultimate  profit, 
granting  he  was  correct  in  his  first  surmise  that  the 
stock  was  selling  much  below  its  value.  Certainly  a 
trader  with  $1000,  and  no  more,  has  no  business  to 
start  with  a  hundred  shares  of  stock  unless  it  be  some- 
thing at  a  very  low  price.  There  was  a  time  when 
Steel  common  could  have  been  bought  below  $10  a 
share. 

Little  Traders  and  Large 

Another  delusion  of  the  small  trader  is  that  he 
should  buy  part  of  the  quantity  he  contemplates,  add- 
ing to  his  holdings  on  each  point  of  decline  until  he 
completes  the  amount  he  thinks  he  can  carry.  But 
why  not  buy  it  all  at  the  last  price  ?  If  he  proposes  to 


268    THE  STOCK  MARKET  BAROMETER 

buy  one  hundred  shares  in  twenty-share  lots,  and  ex- 
pects that  there  will  be  a  decline  of  five  points  in  the 
market,  he  is  really  contradicting  the  assumption  upon 
which  he  originally  decided  to  trade.  He  has  not  con- 
sidered all  the  facts  of  the  case.  If  the  stock  can  go 
down  five  points  the  purchase  is  not  so  good  a  one  as 
he  supposed.  It  is  quite  true  that  great  operators, 
like  Jay  Gould,  did  buy  stock  in  that  way.  But  they 
were  not  trading  on  margin,  except  in  the  respect  that 
they  financed  their  stocks  mostly  through  their  own 
banks.  And  they  were  buying  upon  considerations 
which  would  seem  hopelessly  remote  to  the  small 
speculator  who  wishes  to  test  his  judgment  in  Wall 
Street.  Such  a  man  as  Jay  Gould,  moreover,  could 
himself  give  value  to  the  things  he  purchased.  He 
might  well  start  to  buy  into  a  company  during  the 
course  of  a  major  bear  swing,  knowing  that  he  could 
not  get  all  the  stock  he  wanted  in  a  bull  market. 

The  small  speculator  cannot  afford  to  take  any  such 
view,  unless  he  purposes  to  devote  such  exclusive  atten- 
tion to  stock  trading  as  he  would  give  to  any  other 
business.  There  are  plenty  of  people  who  do  that,  and 
I  have  in  previous  discussions  given  instances  of  their 
success.  But  we  are  talking  now  of  the  man  who 
speculates  on  his  judgment  while  interested  in  some 
other  business.  There  is  no  reason  why  a  speculator 
of  this  class  should  not  have  more  than  an  even-money 
chance  in  the  market  if  he  would  only  bring  a  little 
common  sense  to  bear.  But  if  he  will  listen  to  the 
first  casual  friend  who  tells  him  to  "buy  a  hundred 
shares  of  A.  O.  T.,  and  ask  no  questions,1'  and  risks 


SOME  THOUGHTS  FOR  SPECULATORS    269 

his  only  thousand  dollars  in  doing  so,  he  cannot  com- 
plain if  he  loses.  He  is  a  gambler  and  not  a  specu- 
lator. He  would  have  much  more  fun  if  he  took  his 
dollars  to  the  races.  He  would  have  a  healthy  day 
in  the  open  air  and  find  the  racehorse  a  much  more 
amusing  spectacle  than  the  ticker. 

A  Quotation  from  Dow 

In  an  editorial  published  in  The  Wall  Street  Jour- 
nal on  July  n,  1901,  Charles  H.  Dow  said: 

"If  people  with  either  large  or  small  capital  would  look 
upon  trading  in  stocks  as  an  attempt  to  get  12  per  cent  per 
annum  on  their  money  instead  of  50  per  cent  weekly,  they  would 
come  out  a  good  deal  better  in  the  long  run.  Everybody  knows 
this  in  its  application  to  his  private  business,  but  the  man 
who  is  prudent  and  careful  in  carrying  on  a  store,  a  factory  or 
a  real  estate  business,  seems  to  think  that  totally  different  meth- 
ods should  be  employed  in  dealing  in  stocks.  Nothing  is  further 
from  the  truth." 

In  the  same  article  Dow  went  on  to  say  that  the 
speculator  can  avoid  tying  himself  up  in  a  financial 
knot  at  the  outset  by  keeping  his  transactions  down  to  a 
limit  which,  compared  with  his  capital,  leaves  his  judg- 
ment clear  and  affords  ample  ability  to  cut  loss  after 
loss  short;  to  double  up;  to  switch  to  some  other 
stock,  and  generally  to  act  easily  and  fearlessly  instead 
of  under  the  constraint  which  comes  from  a  knowledge 
that  his  margin  of  safety  is  so  small  as  to  leave  no 
room  for  anything  except  a  few  anxious  gasps  before 
the  account  is  closed. 


270    THE  STOCK  MARKET  BAROMETER 

This  is  as  good  sense  now  as  on  the  day  it  was 
Written.  The  speculator  who  comes  into  Wall  Street 
must  learn  to  take  losses,  and  take  them  quickly.  I 
have  said  before  that  more  money  has  been  lost  in 
Wall  Street  from  sheer  pride  of  opinion  than  from 
any  other  single  cause.  If  you  buy  a  stock  and  find 
that  it  is  falling  rapidly,  you  have  not  considered  all 
the  facts  of  the  case.  You  cannot  consider  them  im- 
partially so  long  as  you  are  under  the  terror  of  losing 
all  your  capital.  You  cannot  take  a  clear,  unbiased 
view  unless  you  get  out  and  look  at  the  thing  objec- 
tively. When  you  are  tied  up  in  a  losing  speculation 
you  are  in  the  position  of  the  man  lost  in  the  forest 
who  cannot  see  the  wood  for  the  trees.  . 

Avoiding  Inactive  Stocks 

Readers  will  remember  the  story  I  told  of  the  young 
man  who  refused  a  partnership  offered  to  him  by  Jay 
Gould  because,  in  executing  Gould's  orders  on  the  floor 
of  the  Stock  Exchange,  Gould  seemed  to  him  to  make 
nothing  but  losses.  He  was  not  broad  enough  to  see 
that  these  unsuccessful  attempts  were  merely  testing 
purchases,  and  that  Gould  probably  employed  some 
other  broker  when  he  was  quite  sure  that  he  had 
caught  the  turn  of  the  market.  Here  is  where  the 
purchase  of  a  stock  only  occasionally  active  becomes 
so  dangerous.  The  broker  may  be  able  to  carry  it 
very  well  to-day,  although  inactive  stocks  are  not 
looked  upon  with  favor  in  bank  loans. 

But  the  broker  himself  does  not  know  whether  he 


SOME  THOUGHTS  FOR  SPECULATORS    271 

can  carry  the  stock  so  conveniently  to-morrow.  The 
peculiar  circumstances  which  started  the  movement 
in  that  stock  may  be  fully  discounted  in  a  few  days' 
active  trading,  and  the  event  will  be  a  market  without 
a  single  transaction  for  days  together,  where  the  seller 
is  obliged  to  make  concessions  to  find  a  buyer — gen- 
erally a  professional,  who  charges  all  the  traffic  will 
bear  for  such  a  service.  Such  a  stock  should  not  be 
carried  on  margin  at  all.  But  the  man  whose  business 
is  in  some  intimate  connection  with  the  steel  trade  or 
the  textile  industry  may  well  take  hold  of  Steel  com- 
mon or  Bethlehem  Steel  or  American  Woolen,  feeling 
that  there  is  a  permanent  market  if  not  always  an 
active  one. 

A  Word  for  the  Consolidated  Exchange 

I  have  many  friends  in  the  New  York  Stock  Ex- 
change, but  I  have  also  friends  elsewhere  in  Wall 
Street.  The  odd-lot  brokers,  of  whom  there  are  fewer 
than  ten  firms  specializing  in  that  way,  make  the  mar- 
ket in  lots  of  less  than  a  hundred  shares.  But  the 
Consolidated  Stock  Exchange  makes  a  regular  market 
for  those  small  quantities  all  the  time.  It  is  in  every 
way  a  reputable  institution,  whose  members  are  open 
to  the  same  scrutiny  the  speculator  ought  to  apply  to 
any  broker  he  employs.  Our  small  amateur  trader 
can  do  his  business  just  as  well  on  the  Consolidated 
Exchange,  provided  he  chooses  really  active  stocks. 
Such  stocks  are  "seasoned"  and  thoroughly  well  dis- 
tributed, and  this  is  not  true  of  those  which  make  up 


272    THE  STOCK  MARKET  BAROMETER 

the  list  of  the  Curb  Association.  I  am  not  saying  one 
word  against  the  latter,  but  the  securities  in  which  it 
deals  are  seldom  popular  in  bank  loans,  and  I  should 
have  the  strongest  suspicions  of  a  Curb  house  which 
professed  to  trade  for  its  customers  indiscriminately 
on  a  10  per  cent  margin. 

By  all  means  get  the  idea  of  such  a  margin  out  of 
your  head.  The  margin  should  be  as  good  as  you 
can  make  it.  If  you  are  engaged  in  business  or  living 
upon  an  income  from  investments  with  people  depen- 
dent upon  you,  your  losses  in  speculation  should  be 
limited  to  an  amount  which  will  not  cause  you  serious 
compunction.  It  is  probably  heterodox  to  say  so,  but 
there  is  common  sense  in  the  proposition  that  gambling 
begins  where  we  risk  what  we  cannot  really  afford  to 
gain  something  we  have  not  earned. 

A  Glance  at  Short  Selling 

How  can  the  stock  market  barometer  help  the 
speculator?  In  many  ways.  He  cannot  expect  any 
stock,  except  under  most  unusual  circumstances,  to 
advance  profitably  against  the  general  current  of  the 
market.  He  must  be  most  unusually  well  informed, 
an  almost  instinctive  reader  of  the  market,  if  he  can 
speculate  successfully  on  the  occasional  rallies  which 
take  place  in  a  major  downward  swing.  I  am  saying 
little  about  short  selling.  The  man  who  tries  short 
selling  in  a  bull  market  is  merely  guessing  at  the  sec- 
ondary reactions,  and  unless  he  is  a  trader  on  the  floor 
or  devoting  all  his  attention  to  the  business  of  specula- 


SOME  THOUGHTS  FOR  SPECULATORS    273 

tion,  he  is  certain  to  lose  his  money.  I  am  not  dis- 
cussing the  morality  of  short  selling,  because  I  do  not 
believe  the  moral  question  enters  into  speculation  at 
all,  provided  it  does  not  degenerate  into  gambling 
with  what  is,  in  effect,  other  people's  money.  In  every 
market  in  the  world  there  is  necessarily  a  great  deal 
of  short  selling.  The  tourist  in  San  Francisco  whose 
stocks  are  locked  up  in  his  safe  deposit  box  in  New 
York  cannot  afford  to  miss  his  market  by  waiting  until 
he  returns  across  the  continent.  If  he  sells  he  is  short 
of  the  market,  and  a  borrower  of  stocks  until  he  can 
make  his  delivery  good.  But  on  the  law  of  averages, 
far  more  money  has  been  made  on  the  bull  side  than 
has  ever  been  made  on  the  bear  side,  if  only  for  the 
reason  that  bull  markets  are  generally  much  longer  in 
their  duration  than  bear  markets.  Short  selling  is  an 
operation  which  may  well  be  left  to  the  professional, 
especially  by  the  man  who  is  only  a  student  of  the 
market  learning  the  rules  of  the  game. 

Buying  on  Reactions 

No  knowledge  of  the  stock  market  barometer  will 
enable  any  of  us  to  call  the  absolute  turn  from  a  bear 
market  to  a  bull  market.  There  may  be  weeks  ol 
narrow  fluctuations  before  a  definite  trend  is  estab- 
lished, as  we  have  seen  in  our  previous  studies  of  the 
market  movement.  All  of  these  indecisive  fluctua- 
tions eat  up  the  speculator's  capital,  in  broker's  com- 
missions and  interest,  to  say  nothing  of  the  market 
turn.  But  when  once  the  major  bull  swing  is  estab- 


274    THE  STOCK  MARKET  BAROMETER 

lished  the  successful  purchase  of  stocks  for  a  rise  be- 
comes a  feasible  proposition.  If  on  the  completion 
of  his  purchase  a  stock  reacts,  carried  down  by  a 
similar  reversal  of  movement  in  the  general  market, 
the  speculator  should  take  his  loss  without  hesitation 
and  wait  for  that  inevitable  period  of  dulness  which  de- 
velops after  a  secondary  reaction  in  a  major  bull  swing. 
Here  again  he  may  buy  his  stock,  and  instead  of 
purchasing  on  the  way  down,  on  the  fallacious  assump- 
tion I  exposed  earlier  in  this  article,  he  may  well  add 
to  his  holdings  as  the  market  rises.  Each  advance 
adds  to  his  margin  of  safety,  and,  provided  he  does  not 
"pyramid"  too  much,  and  conceding  that  his  holdings 
are  not  overextended  so  that  his  own  account  would 
be  a  tempting  object  of  attack,  the  speculator  may 
well,  if  he  protects  himself  with  "stop-loss"  orders, 
make  profits  much  more  substantial  than  he  at  first 
expected.  We  hear  a  great  deal  about  people  who 
lost  money  in  Wall  Street  but  very  little  about  those 
who  made  substantial  profits  there.  The  latter,  as  a 
class,  are  inarticulate,  in  my  experience;  and  a  man 
seldom  cares  to  ascribe  his  prosperity  to  successful 
speculation.  He  prefers  to  call  it  judicious  investment. 
There  is  little  difference  between  a  purchase  of  a  house 
on  mortgage  and  a  purchase  of  stocks  on  margin,  pro- 
vided the  purchaser  can  meet  his  contracts.  In  these 
great  uplifting  times,  when  everybody  is  minding 
everybody  else's  affairs,  I  am  still  disposed  to  say  that 
it  is  nobody's  business  how  our  speculator  carries  his 
stocks  so  long  as  he  does  so  out  of  his  own  resources, 
which  include  his  borrowing  credit  at  the  bank. 


SOME  THOUGHTS  FOR  SPECULATORS    275 

Ways  of  Losing  Money 

There  is  another  class  of  speculator,  all  too  com- 
mon, who  loses  money  by  forgetting  why  he  went  into 
the  market  in  the  first  place.  Knowing  me  personally, 
he  asks  me  my  opinion  of  Atchison  common.  I  tell 
him  what  the  road's  prospects  are,  what  the  earned 
margin  may  be  over  and  above  the  dividend,  and  the 
general  railroad  outlook  in  that  part  of  the  country. 
He  concludes  that  Atchison  common  (here  chosen 
merely  for  example)  is  cheap,  and  buys  himself  some 
of  it.  If  he  would  protect  his  broker  with  ample 
margin,  or  pay  for  the  stock  outright,  and  ignore  fluc- 
tuations, he  would  probably  make  money. 

But  he  listens  to  every  bit  of  gossip,  particularly 
stories  of  "traders  selling,"  "Congressional  investiga- 
tion," "threatened  strikes,"  "crop  failures,"  and  all 
the  rest  of  it.  He  forgets  that  the  market  has  made 
allowance  for  everything  of  the  kind  in  the  broad 
estimate  of  the  prospective  value  of  the  stock.  He 
becomes  nervous  on  a  minor  fluctuation,  takes  a  loss 
and  decides  never  to  ask  my  opinion  again.  At  least 
I  wish  he  would  so  decide ;  but,  unfortunately,  he  does 
not.  He  comes  to  me  again  to  see  if  I  cannot  say 
something  to  upset  what  he  calls  his  judgment,  based, 
this  time,  upon  the  opinion  of  somebody  else. 

Another  Way  of  Losing  Money 

Take  another  easy  way  of  losing  money  in  Wall 
Street.  The  speculator  is  informed,  correctly,  of  a 
coming  quick  movement,  perhaps  covering  four  points 


276    THE  STOCK  MARKET  BAROMETER 

in  a  particular  stock.  He  notices  that  the  stock  has 
been  active,  without  paying  much  attention  to  the  fact 
that  a  point  and  a  half  of  the  expected  four  points  is 
already  shown  in  the  advance  of  the  price.  After 
some  hesitation  he  buys,  when  the  movement  is  almost 
completed.  He  sees  a  small  profit,  and  then  the  stock 
becomes  dull.  The  special  movement  is  over.  The 
attention  of  the  professionals  is  turned  to  some  other 
security,  and  his  own  stock  sags  with  the  market  or 
eats  its  head  off  in  interest.  But  he  is  still  fatuously 
holding  on  instead  of  realizing  that  he  has  missed 
his  opportunity  and  has  had  what,  if  he  would  look 
at  it  sensibly,  is  really  a  cheap  and  most  instructive 
lesson. 

Here  again  he  forgets  why  he  originally  bought  the 
stock,  just  as  he  did  when  he  purchased  on  permanent 
value.  If  the  special  movement  he  anticipated  fails  to 
materialize  he  should  take  his  loss,  or  his  disappoint- 
ingly small  profit,  and  wait  for  another  chance.  But 
the  trouble  with  most  of  the  speculators  of  my  ac- 
quaintance is  that  they  lack  not  only  memory  but  the 
virtue  of  patience.  They  must  be  dabbling  all  the 
time;  and  sooner  or  later  they  get  tied  up  with  an 
account,  extended  to  their  full  resources,  which  seems 
to  have  run  aground,  with  the  general  current  of  the 
market  swinging  past  it. 

"Where  do  the  Gentiles  Get  It?" 

It  is  a  common  mistake  to  suppose  that  the  repu- 
table broker  makes  his  profits  out  of  what  his  customer 


SOME  THOUGHTS  FOR  SPECULATORS    277 

loses.  The  broker  stays  in  business  out  of  the  com- 
missions that  his  customers  pay.  He  not  only  wants 
them  to  make  money,  but  he  does  everything  he  can  to 
help  them  do  so,  or,  at  the  worst,  to  prevent  them  from 
losing  money.  It  is  only  the  bucket  shop  which  wants 
a  new  customer  every  day,  to  fleece  thoroughly  before 
the  market  closes.  All  the  reputable  brokers  of  my 
acquaintance  are  proud  to  point  to  customers  who  have 
been  employing  them  for  many  years,  in  good  times 
and  bad,  extending  in  at  least  two  instances  I  can  re- 
call, to  nearly  half  a  century. 

In  writing  this  I  have  necessarily  outlined  a  patient, 
intelligent  and  level-headed  speculator — in  fact,  a  man 
of  exceptional  coolness  and  poise.  But  that  is  the 
kind  of  speculator  for  whom  I  am  writing.  I  am 
certainly  not  drumming  up  business  for  the  Stock  Ex- 
change. These  stories  of  the  continual  losses  of  the 
outside  public  in  Wall  Street  always  remind  me  of  the 
young  Jew  who  said  to  his  wealthy  parent:  "Father, 
where  do  the  gentiles  get  all  the  money  that  we  take 
away  from  them?"  Where  does  the  public  get  ail 
this  money  which  Wall  Street  is  supposed  to  take  from 
it  in  speculation?  Is  the  broker's  commission  a  sort 
of  middleman's  profit  taken  out  of  the  whole  business 
of  the  country?  To  a  certain  extent  it  is;  but  not  to 
anything  like  the  extent  the  people  who  do  not  love 
Wall  Street  assume.  Wall  Street  is  the  great  reservoir 
for  small,  trickling  streams  of  capital.  Great  corpora- 
tions would  be  impossible  if  there  were  not  a  free 
market  for  the  interchange  of  their  securities.  The 
free  market  is  in  itself  an  element  of  value.  If  we 


278     THE  STOCK  MARKET  BAROMETER 

could  imagine  two  securities  of  exactly  equal  merit  in 
every  respect,  the  one  with  the  free  market  would  in- 
evitably, and  most  properly,  sell  anything  from  five 
to  ten  points  above  the  other.  It  is  exactly  this  free 
market  that  Wall  Street  provides. 

A  Final  Thought 

This  brings  me  to  the  conclusion  of  my  discussions 
of  the  stock  market  barometer.  I  would  not  have  it 
on  my  conscience  that  I  had  encouraged  any  weakling 
to  gamble,  or  had  expedited,  by  a  day,  the  inevitable 
parting  of  a  fool  from  his  money.  At  least  in  that 
respect  every  man  is  a  free  agent.  In  spite  of  all  sorts 
of  personally  regulatory  legislation,  he  has  still  that 
much  freedom  allowed  to  him.  We  can  imagine  laws 
which  would  make  speculation  impossible,  even  if,  as 
they  certainly  would,  they  paralyzed  the  business  of 
the  United  States.  But  we  cannot  imagine  any  law 
which  would  compel  a  man  to  trade  in  Wall  Street  if 
he  did  not  choose  to  do  so.  All  I  have  tried  to  do 
here  is  to  show  him  how  he  can  protect  himself,  and 
at  least  feel  that  not  only  has  he  had  a  fair  run  for 
his  money  but  that  he  has  earned  the  prize  at  the  end 
of  the  run. 


APPENDIX 


APPENDIX 

RECORD  OF  THE  DOW-JONES  AVERAGES  TO 
AUGUST  31,  1925 

Dow,  Jones  &  Co.  began  the  publication  of  average 
closing  prices  of  active  representative  stocks  in  1884. 
The  original  list  of  stocks  used  was  as  follows: 

Chicago  &  North  Western  Union  Pacific 

D.,  L.  &  W.  Missouri  Pacific 

Lake  Shore  Louisville  &  Nashville 

New  York  Central  Pacific  Mail 

St.  Paul  Western  Union 
Northern  Pacific  pref. 

The  first  average  found  in  the  files,  of  these  eleven 
stocks,  nine  of  which  were  rails,  was  69.93  as  °f  Juty 
3,  1884. 

The  following  is  a  complete  statement  of  the  record 
from  1896  to  date: 

Railroads 

The  railroad  stocks  used  in  January,  1897,  were: 

Atchison  Mo.,  Kansas  &  Texas  pref. 

Burlington  Missouri  Pacific 

C.,  C.,  C.  &  St.  Louis  New  York  Central 

Chesapeake  &  Ohio  Northern  Pacific  pref. 

Chicago  &  North  Western  New  York,  Ontario  &  Western 

Erie  Reading 

Jersey  Central  Rock  Island 

Lake  Shore  St.  Paul 

Louisville  &  Nashville  Southern  Railway  pref. 

Manhattan  Elevated  Wabash  pref. 

281 


282:  APPENDIX 

Changes  have  been  made  as  follows: 

In  July,  1898,  Metropolitan  Street  Railway,  Union 
Pacific  common  and  Northern  Pacific  common  were 
substituted  for  Lake  Shore,  New  York,  Ontario  & 
Western  and  Northern  Pacific  preferred. 

In  July,  1899,  Brooklyn  Rapid  Transit,  Denver  & 
Rio  Grande  preferred  and  Norfolk  &  Western  pre- 
ferred were  substituted  for  Metropolitan  Street  Rail- 
way, Reading  and  Erie. 

In  July,  1900,  Southern  Pacific  common  and  Union 
Pacific  preferred  were  substituted  for  Wabash  pre- 
ferred and  Norfolk  &  Western  preferred. 

In  June,  1901,  Baltimore  &  Ohio,  Illinois  Central, 
Southern  Railway  common,  and  Pennsylvania  were 
substituted  for  Burlington,  Southern  Pacific  common, 
Southern  Railway  preferred  and  Northern  Pacific 
common. 

In  September,  1902,  Reading,  Canadian  Pacific, 
Delaware  &  Hudson  and  Minneapolis  &  St.  Lous  were 
substituted  for  Missouri,  Kansas  &  Texas  preferred, 
Rock  Island,  Chesapeake  &  Ohio  and  Jersey  Central. 

On  May  18,  1904,  Southern  Pacific  common  was  sub- 
stituted for  Minneapolis  &  St.  Louis. 

On  June  27,  1904,  Wabash  preferred  and  Metro- 
politan Street  Railway  were  substituted  for  C.,  C.,  C. 
&  St.  Louis  and  Denver  preferred. 

On  April  12,  1925,  Erie  was  substituted  for  Wabash 
preferred. 

In  May,  1905,  Northern  Pacific  common  and  Nor- 
folk &  Western  were  substituted  for  Manhattan  and 
Union  Pacific  preferred. 


APPENDIX  283 

On  May  4,  1906,  Twin  City  Rapid  Transit  was  sub- 
stituted for  Metropolitan  Street  Railway. 

On  April  25,  1912,  Rock  Island  and  Lehigh  Valley 
were  substituted  for  Brooklyn  Rapid  Transit  and  Twin 
City  Rapid  Transit. 

On  December  12,  1914,  Chesapeake  &  Ohio,  Kansas 
City  Southern  and  N.  Y.,  N.  H.  &  Hartford  were 
substituted  for  Chicago  &  North  Western,  Missouri 
Pacific  and  Rock  Island. 

On  April  10,  1924,  D.,  L.  &  W.  and  St.  Louis  South- 
western were  substituted  for  Kansas  City  Southern  and 
Lehigh  Valley. 

The  railroad  list  now  (August  31,  1925)  is  as  fol- 
lows: 

Atchison  Illinois  Central  Reading 

Bait.  &  Ohio  Louisville  &  Nash.  St.  L.  Southwestern 

Canadian  Pacific  New  York  Central  St.  Paul 

Chesapeake  &  Ohio  New  Haven  Southern  Pacific 

Del.  &  Hudson  Norfolk  &  Western  Southern  Railway 

Del.,  Lack.  &  W.  Northern  Pacific  Union  Pacific 

Erie  Pennsylvania 

Basis  of  Calculation 

Originally  quotations  were  all  in  percentages.  On 
October  13,  1915,  the  Stock  Exchange  ruled  that  all 
stocks  should  sell  on  a  dollar-share  basis.  For  the  sake 
of  continuity  the  averages  of  Pennsylvania,  Reading 
and  Lehigh  Valley,  all  having  $50  par  values,  have 
ever  since  been  computed  on  a  percentage  basis,  which 
was  obtained  by  doubling  their  market  quotation. 
Lehigh  having  been  dropped,  it  is  now  necessary  to 
double  the  quotation  only  in  the  cases  of  Pennsylvania 


284  APPENDIX 

and  of  Reading,  all  the  railroad  stocks  being  adjusted 
by  this  arrangement  to  both  the  dollar  and  the  per- 
centage basis. 

Industrial  Stocks 

The  twelve  industrial  stocks  used  in  January,  1897, 
were: 

American  Cotton  Oil  Laclede  Gas 

American  Spirits  Mfg.  National  Lead 

American  Sugar  Pacific  Mail 

American  Tobacco  Standard  Rope  &  Twine 

Chicago  Gas  Tennessee  Coal  &  Iron 

General  Electric  U.  S.  Leather  pref. 

Changes  have  been  made  as  follows : 

In  November,  1897,  Peoples  Gas  was  substituted  for 
Chicago  Gas. 

In  September,  1898,  U.  S.  Rubber  common  was  sub- 
stituted for  General  Electric. 

In  April,  1899,  Continental  Tobacco,  Federal  Steel, 
General  Electric,  American  Steel  &  Wire  were  substi- 
tuted for  American  Spirits  Mfg.,  American  Tobacco, 
Laclede  Gas  and  Standard  Rope  &  Twine. 

In  June,  1901,  Amalgamated  Copper,  American 
Smelting  &  Refining,  International  Paper  preferred, 
U.  S.  Steel  common  and  U.  S.  Steel  preferred  were 
substituted  for  American  Cotton  Oil,  Federal  Steel, 
General  Electric,  Pacific  Mail  and  American  Steel  & 
Wire. 

In  January,  1902,  American  Car  &  Foundry  and 
Colorado  Fuel  &  Iron  were  substituted  for  Continental 
Tobacco  and  International  Paper  preferred. 


APPENDIX  285 

In  April,  1905,  U.  S.  Rubber  1st  preferred  was  sub- 
stituted for  U.  S.  Leather  preferred. 

In  November,  1907,  General  Electric  was  substituted 
for  Tennessee  Coal  &  Iron. 

In  May,  1912,  Central  Leather  common  was  sub- 
stituted for  Colorado  Fuel  &  Iron. 

The  list,  therefore,  when  the  Stock  Exchange  closed  on 
July  31,  1914,  because  of  the  war,  was: 

Amalgamated  Copper  National  Lead 

American  Car  &  Foundry  Peoples  Gas 

American  Smelting  U.  S.  Rubber  com. 

American  Sugar  U.  S.  Rubber  ist  pref. 

Central  Leather  U.  S.  Steel  com. 

General  Electric  U.  S.  Steel  pref. 

In  March,  1915,  General  Motors  was  substituted 
for  U.  S.  Rubber  ist  preferred. 

In  July,  1915,  Anaconda  was  substituted  for  Amalga- 
mated Copper. 

In  September,  1916,  a  list  of  twenty  industrials,  all 
common,  was  substituted  for  the  old  list  of  twelve. 
National  Lead,  Peoples  Gas,  General  Motors  and  U.  S. 
Steel  preferred  were  dropped  and  twelve  new  com- 
panies were  added.  The  list  became: 

American  Beet  Sugar  General  Electric 

American  Can  Goodrich 
American  Car  &  Foundry          Republic  Iron  &  Steel 

American  Locomotive  Studebaker 

American  Smelting  Texas  Co. 

American  Sugar  U.  S.  Rubber 

American  Tel.  &  Tel.  U.  S.  Steel 

Anaconda  Copper  Utah  Copper 

Baldwin  Locomotive  Westinghouse 

Central  Leather  Western  Union 


286  APPENDIX 

rAll  Quotations  on  Dollar  Basis 

At  this  time  (1916)  Stock  Exchange  quotations  were 
all  in  dollars  instead  of  percentages,  so  the  fact  that 
Utah  had  a  par  of  $10  and  Westinghouse  a  par  of  $50 
caused  no  immediate  confusion  in  the  new  averages. 
However,  in  order  to  make  continuity  for  the  industrial 
averages,  the  records  of  the  twenty  new  stocks  were 
figured  backward  to  the  reopening  of  the  Stock  Ex- 
change on  December  12,  1914,  after  the  war  closing,  so 
that  the  present  published  record  of  averages  is  as  if 
the  twenty  stocks  mentioned  above  had  been  quoted  on 
the  dollar  basis  from  that  date. 

Changes  since  made  are  as  follows : 

On  March  i,  1920,  Corn  products  was  substituted 
for  American  Beet  Sugar. 

On  January  22,  1924,  American  Tobacco,  du  Pont, 
Mack  Trucks  and  Sears-Roebuck  were  substituted  for 
Corn  Products,  Central  Leather,  Goodrich  and  Texas 
Co. 

On  February  6,  1924,  Standard  Oil  of  California 
Vas  substituted  for  Utah. 

On  May  12,  1924,  Studebaker  non-par  and  Wool- 
worth  $25  par  were  substituted  for  old  Studebaker  and 
Republic  Iron  &  Steel. 

After  the  change  from  twelve  to  twenty  industrials, 
in  1916,  Texas  Co.  reduced  its  par  from  $100  to  $25. 
Then  American  Locomotive  changed  from  $100  par  to 
non-par,  issuing  two  new  shares  for  one  old  share. 
Studebaker  changed  from  $100  par  to  non-par,  issuing 


APPENDIX  287 

two  and  a  half  shares  of  new  for  one  of  old.  The  com- 
plication arising  from  the  Texas,  American  Locomotive 
and  Studebaker  changes  brought  about  new  adjust- 
ment. 

Texas  Co.  and  Corn  Products  were  dropped.  Amer- 
ican Locomotive  was  retained  at  the  actual  new  quota- 
tion. These  changes,  made  on  January  22,  1924,  were 
so  fitted  into  the  scheme  of  quotations'  that  while  the 
closing  prices  on  a  Tuesday  averaged  97.41  on  the  old 
stocks,  the  average  on  the  new  stocks  was  97.23,  all 
being  figured  on  the  dollar  basis. 

This  made  the  industrial  list  for  July,  1924,  as  fol- 
lows: 


American  Can  General  Electric 

American  Car  &  Foundry  Mack  Trucks 

American  Locomotive  Sears-Roebuck 

American  Smelting  Standard  Oil  of  California 

American  Sugar  Studebaker 

American  Tel.  &  Tel.  U.  S.  Rubber 

American  Tobacco  U.  S.  Steel 

Anaconda  Woolworth 

Baldwin  Westinghouse 

du  Pont  Western  Union 


On  August  31,  1925,  General  Motors,  International 
Harvester,  Kennecott,  Texas  Co.  and  U.  S.  Realty 
were  substituted  for  Anaconda,  Baldwin,  du  Pont, 
Standard  Oil  of  California  and  Studebaker  in  the  in- 


288  APPENDIX 

dustrial  list.    These  changes  made  no  appreciable  dif- 
ference in  the  averages. 

The  industrial  list  now  (August  31,  1925)  is  as  fol- 
lows: 


American  Can  Kennecott 

American  Car  &  Foundry  Mack  Trucks 

American  Locomotive  Sears-Roebuck 

American  Smelters  Texas  Co. 

American  Sugar  U.  S.  Realty 

American  Tel.  &  TeL  U.  S.  Rubber 

American  Tobacco  U.  S.  Steel 

General  Electric  Western  Union 

General  Motors  Westinghouse 

International  Harvester  Woolworth 


All  stocks  used  in  both  lists  are  common  stocks. 
Within  the  last  year  capital  readjustments  of  Amer- 
ican Car  &  Foundry  and  American  Tobacco  resulted  in 
the  issue  of  two  new  shares  for  each  old  share,  split- 
ting the  quotation.  To  maintain  the  consistency  of  the 
averages  it  is  necessary  to  double  the  price  of  Car  & 
Foundry  and  Tobacco,  as  in  the  case  of  Pennsylvania 
and  Reading. 

The  averages  are  compiled  from  closing  prices.  In 
case  there  is  no  sale  of  a  particular  stock,  the  last  pre- 
vious close  is  used.  The  total  sum  of  the  closing  quo- 
tations for  the  twenty  rails,  with  Pennsylvania  and 
Reading  doubled,  is  then  divided  by  twenty.  The  total 


APPENDIX  289 

sum  of  the  closing  quotations  of  the  twenty  industrials, 
with  Car  &  Foundry  and  Tobacco  doubled,  is  then  di- 
vided by  twenty. 

THE  FOLLOWING  PAGES  GIVE 
THE  AVERAGE  CLOSING  PRICES 

1897-1925 


290  APPENDIX 


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APPENDIX 


291 


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292  APPENDIX 


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APPENDIX  293 

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APPENDIX  297 

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298 


APPENDIX 


,. 

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299 


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APPENDIX 


301 


°.   oo  ao  wise  to  p»   o  to  o  o\  to  co   so  o  •*  to  to    vo  to  o  va  vo  ui  o 
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304 


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O    O 


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305 


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306 


APPENDIX 


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APPENDIX 


307 


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308  APPENDIX 


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APPENDIX  309 

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APPENDIX 


311 


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3i2 


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APPENDIX 


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l^»  O        O 

CO 

Ox 

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fa    H?         H?  nt  «    ?  * 

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0 

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d  d"1" 

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t-oo 


OOVO  "^MtxOSQt^  O     M     w    tO    M     O  Mt^    Tj-VO     OS   O     O 

**.    C?*f>.    .       N    9    *?°°  VO    t>          N    N    Ox  Tj-VO    &  t>f**TU?'*>^'i      >\    %? 

f    vd   u1!  TJ.  ^j.  ^j.  rj-*     ^  uS  u-»  u-i  4  4*  4  u-i  uS  u-i  u-iOO    4    «6    4? 

•—     — •     "  ^^^-.«^.^i  MMHlMHlM  HlMMHIMM  M,  M<M    M    M    M    M    *B    2 

MHIW         MMMMMM         MMHIMMM         MHMHMM  MMMMnMHin" 

CA    S 

M   pj    to  rj-  «n\O   txOO    Ox  2   JJ    H    H?  M"  M1*0    M"^H    ^  °    M   ft    to  »*•  u^vo  J^oo    OS  O    M^M  ^ 


316 


APPENDIX 


.           «ANO    O  00    O    "*•          to  N    to  WNOO  00           <N»    M  NO  OO    w>  N           f»  NO           «0  W1  <$•        NO    tx  VN  tf| 

u^ootoqoooooo^     q  q  N   O   «   rx#    N  N  NO  txoo  t^    N   to .     topji-j^    N  oo  oo  N 

Q          Q    d    O\  tx  t^  tN.        NO  NO    «ONO  so    «A        NO  NO  VTINO    tx  t>.         tx  t>.         t~.t~.tx         l~.  fx  d   ^ 
ON   ONOO   OO    OO   OO            OOOOOOOOOOOO            OOOOOOOOOOOO            OO    OO            OO    OO   00            OO   OO     O-  OO 

U   M               ON        ^  !•«.  w   f»»       ooONOQ    Os  NO  t~.*oOtoMr<         ^  «t-  r»        NO   Q         -+-00 

C  "">•_-     N  .     ON  NO  to  to-     m  M   os  ^  o   •"  *    osOtorhO«nj.oOtoso  j «   «•       os  "i 

O  -j  •!*•  w    •  T1^   ••••»    ..»..»v  .•..*.i|l-?«.  T^  .   ;      .   • 

*-»  o      Q    M  M  M  o    Os  O  Os  O  O  O  Os  O  O  ^  M  O      O  O    w  M    M  ON 


ON  ON  ON  ON  ON    ON  ^K  ON  ON  ON  ON    ON  ON  ON  Os  ON  ON    ON  ON  ON  QS  ON  ON    ON    ON  ON 

ON  CSflO  O>00     ONONONON  ONONONONOSON  ONOsONONONON  ONONONONON  Os  OO 

•.U^ONM  QtO  ^'t~«OONO^~NO  ONWOOt/>t~,O  VIOOVNOO1^!  t^OOMOSfs. 

_^»   tO  NO   NO     .,     NO      tO^        1H     O     «     O     ON   0   ^        Nt^'X'htx    t~.^        t~.tO^fO»nTt-^        O^«t~.NOOS 


5           3     M     «     M^^   0\ 

,_J      •—»  ON  ON  ON       oo 

8s 

CT\  CTsOO  OO    t^OO           OO  OO    O^  O\  O\  O\ 
OOOOOOOOOOOO          OOOOOOOOOOOO 

ON  Os  ON 
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ff) 

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rx  1^*0 

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NO 

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7\  9\           ONOO  OO  OO  OO  OO           OO  OO 

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00 

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to  5-  ON  t^.. 

to  NO  oo   Tt~  ^  ^^  *     "">  oo    vo  d   to  to 

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o 

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.JWINOOC*  W  11     O     ^    O    OO     N  MP»Mf»soON  C»OOt~.tOtOW 

j^  q  oo  t>.  «^<  [,    q^    Nr^-NOsMM^    f7-r*t*ri|H'^»    *fv?rT'?"crvoo.# 


NO    O          to  f» 

t—Q*    1  ^  1  °^  *J  1  »    t7>1'oril-"*    '^'C'T'T  c^°°  t 

|,___        d       odddVo\o\      ONoXosONONO*     ooefsosodd 
oo  oo  oo  oo 


*:  O  **  O    «ONO  **  O  t-»  "^     T*-  toNO  ««  ui   «n««oo 

JJ  IO  v^l  ^^   tO  -f  NO  OO  NO  M  0   .   NO  OO  O  t^OO  0   Q  M  t* 


t*  'f  **?  °^  **  *I  *   [.  NO  oo      t^.oo  0    q  M 
dodddd          ddwdd      ww 

OOOOOO  OOOOOOOOOOOO  00    00    00    00    CO  OO    OO    CO  00    00  00    00    00   00 


-I 

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ft 
P 


NooOOrhOvo        OO    tooo    Osvo    «s>        OOootO'J'Ot^ 


3  ^ 
0)  — 
*  -i- 


APPENDIX 


VS  O  CO  Vi  SO  H      f*J  Wi  SO  OO  VSsO      Os  CO     VI  OO  VS 

o  oo  so   >H   M  so        so   IH  oo   vs  u-\  o        sooo        oo   *$•  <st         O  oo    O 
p    O*  Os  OO  OO  OO          so  so    w"t  so  so    vi*    so  so    VI  so    l^  t^»        ^O  so  "**~  so  so  so  *    so  so    O 

N    w 


OO     O  CO  U-)   t«»   IN 

so   "">       oo  oo  *o   M 


cooo  «ocoo         '"soO         <»**•        osco 
'  >o   co  O   t-»        Ostow         ift^        t^-oo 


Q    4-  co  rj-  co  4*     CO  --  ~  —  -; 


NNN  NpjNMM 


N    N  H   ft    fi   ft    M 


QQoocn'i-  oo-ui 


NtsJ"N<sirs!  N  ««« 


t>.  vri\O          Ovv£3    M    p  ^    •<*•         "9^    *I  ^  ^    ••;          *ic?Ql^>H"»     ^°°   "C1  "t"  1          *7   *0 
w    M    «  *     «    «   N   rj    N   to*     to  co  ^-  to  to  ,0*     cocofoNNN         WNNMN  "**"  •*  « 

~  • 


O 

t)   M          «A  O  OO  soosw         oo    ro  M    O    VA,  o          't'^O   vnso    cooo          ^}-Ncovow^  VO"* 

••*  ^*Tj-ts.OsO  COOsOOt^^-O^  Ofs^OOOHtrf-  OO^^^OOO  ^-COM  tOl^CO 


.  ..  .  . 

<«>^CTvd"*"d      d«dd«>>!>*   dddddd*    t^tHOMpJiH      NM      t4o» 

WMMr»     M     NMNNXW     NNNMNN     MNNNNN     MN     NM 


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•lOSOs  (SjCOwOOOOt^.  CO^ 


00  w     00  00  00  00 


o  P  P  P 


VT|    O     W     CO  rj-  M     »*    U^OO     IH 

c         O  oo   t^.  >o  t>.        v,Noo«noo 
C3  ^^  (^.soso^Oso*    so^itovnvn 


W  COOONCOtO 


»o      w  q  q  q  p   >^ 

tA*    v> so  lA  »C^  m   A  . 


.  O    «   N   «o  rj- 


Os  O   M   «  co 


ja  b.  *  •*- 


«   60  fc 

* 


APPENDIX 


.MOO  *!•  w    P>    rt-  OS  M          to  to  M    IH    t^oo  Os  t-»  O    P»    « 

O   toso  ^>  <?oo    to  M    T^-JU     to  ^  >^so    ON  •*-,!(  oo    pj    to  p»    w 

J\    OO  O    O    Os  Os  Os  Os.         O    O    n    t-1    **    PI  M    pi   i 

[— 4  OO   OO  OO  OO    r>.  t^  t>.  l>.  OOOOOOOOOOOO  OO   OO  OO   OO  OO 


"-t—*-t—  Q  *;  T  *?  ^  #  ••!• « 

N      M      M      M      I-  p»      OS 

OO  OO  OO  OO  OO          OO    t>. 


.;    O>  t^.  OsoO  O          **•  P» 

g  so  q  «  to#  5^^  M  •# 

•jr    t^V)  00  00  ON         00    O 

^~*    1>»  t>»  tv»  t>»  tx          t>»  OO 


t-.OO  OO  OO  OO  OO  OO  OQ  OO 


^OO    >*    ._      OSSOA      tOWt^SOlHt^ 
•       •    .  •  -t^      .       .^         .       •       .•       .       . 


ur 

<'^i  1-  TT  ri  r« 
OO  OO  OO  OO  OO 


00  OO  OO  OO  OO  OO 


g 

to 

f 

Q 

z 


dO     O    P)  SO  OO  OO    t^  pj  OO    to  PI    t^  ^  tO  t^  V\          PJ     OS  SO    p<    to  O  Pt    1>*OO 

Ol  OO     PI     PJ    *       P4     tO  M     PJ     OS   O  A       ^^   **^    ^  ^*   ^"    ^jt       PI     *^     <SJ     OS  t^»   Os^       O     ^    PI 

OOOOOOOOOOOO  00   00   00  00   00   00  OOOOOOOOOOOO  OO   00   O? 


oo  O  P»  so 
oo  oo  oo  oo 


q  o\so  # 
pi  p«  p5  to  PI  pi 

00  00  OO  00  00  OO 


to  N  l^»  so  Os  O 
so  so  **"»  w*\  10  so 
00  00  OO  OO  00  00 


OO  OO  OO  OO  OO 


oo  oo  oo  oo  oo  oo 


.TO  to  N    p»    »<^  OsSO 

ci,  T»    T  T  Q  <?oo  q: 


I  "^  p» 

Tltr      "    ^J     ^  **"  *^SO  jk  so     to 

pJMMHMM  PlPtplpitOtO  tOM 

oooooooooooo        oooooooooooo  oo  oo 


;  toso  f^  O        N.^        m  ^ 

!    00    00   00    00  00    00    00    00    00 


totoNw 


toto'ftototo 

OOOOOOOOOOOO 


oo  oo  oo  oo  oo  oo  oo 


t^  M    M    Os  O  OSOO  O    tr>  <r>          M    Pt 

<A,  vA  ^-  >n  vo        \fi  \r\        «Ai4-4        4*^ 

00  00  00  00  00     00  00     00  00  00     00  00 


00  OO  OO  OO  OOOOOOOOOOOO 


so  OO    f»    p»    O    to 


« 
Q 


uiso   tvoo   Os  O 


to  «*•  u-iso    t^oo    Os  O    M    hfi 


APPENDIX 


.      rJ-OO  v>  Ov  N  OO    tx  •$• 


l  lx  to          N    Ix 


tx  ix  tx  tx 


\o        tx  v\ 


O  M  00     ON 


OO     «*  to   M     COVO 


P  P 


- 

^  *    *1  *?  ^"  ^  "C1  *C*    ^  P  ^-t—  ^ 

MMMMMM  MpJfJ  to 


** 


.O 

•lM 


I-»U^OOVOMO         NOoOnoo         t-O 

t^-t^vo'fo\q      «t>t^°o'^1C'c1      "•;  °°. 
ModcScJM*    OOC^OOM      r}-^ 


-• 
00 


O     W 

* 


M    O    O  OO  OO  ffvOO 


.    \o  O  «*oo  ^om  ^-«OOMM  ^Mu^Mvoto  Ntn»'iOo><*        Q  **  o\ 

co     —    *>*  P-f—  P  ^  P  P  l*?^^0"?^*  I'O^T0^0'?*  Tl"!>"!*ff1v^*    P°^P 

Q3(4  pi  WMp5rJ*NNNNMN  *}  «O  «J»  «n  t«  to  enMtONNci*»o»oiN 

•—  >N  N  NNNN  NNNNNM  NNNNMN  «NNNNN           NNM 

<^         M  M  MHMM  MMMMMM  MMMMMM  MHIHHHH      W  l->  M 

O 

...      WVOO  VO  «O  t»l   HI  \O     O  <"            MOOO     ^VO  OO             V>OH«HIU1M             OvHIHIVOtx           MM 


c"PvClcClci 


f-J 


cyv<>c>oooooooooooooooo 


*ooo\dddM*     wM 


O  »i-O<^H<NN 
fcjoo  ooN«Mr^r-« 
&,  tx*  i^oo  oo  oo  t>.  rx 


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M    tx\O    O  VO 


NO    "^OO  VO 


OrJ- 


"^Tj-          Tj-QMOOto'*'        OOflooOu^OO         VOPJfjON  .. 

^ltO  WOO     ^"O     ^J.   N  OO     M    VO      M    OO     CV  CO  OO   OO   OO         >»      2* 

o  vo  *  vo  f^.  ti.  tx  tx  tx*  vo  txvo  tx  tx  ^.*  OO  OO  oo  41  «  - 


W   ffi 

* 


320  APPENDIX 

.  to  O  t^       O  oo  ve  O   O   *t-      >*t^  r-^oo   O  to      *o   O  *  N  to 

O    »*-vO    r^      O  *O    <*•  ««  O    ^»0      O\  r^.  **•  N    N    't'^      M  00    CJ>  *±-  to^j, 

Qw  O  d        M  CKQ.0  M  M        tf  d  M  M  M'M        <>*  M  M   M   M 
oo  oo  oo       oo  txoo  oo  oo  oo       oooooooooooo       oo  oo  oo  oo  oo 

>;   O   "2  "I  "f  N  O          O>,  O   «"  ui  O  oo   i-i   f^  n   O  O    •*  "1        NO  00   N   N  ">  N 

O   1    "I"00.  ^  °°.  *  *^+-  N   *0  *0  ""•*  **"°°  1   "">  •*   'f*  <*°°,   P  -I—  *?  tn*  1  ^   "0  °^   *0 

5rxo«rt«A"^>rt  «A         AMflM  ^j.^.xAiJ.trv'A  •4--i-iA        «Ai«  rntoN  •"  *l 

'-1  oo  oo  oo  oo  oo  oo    oo  oo  oo  oo  oooooooooooo  oo  oo  oo   oo  oo  oo  oo  oo  oo  oo 


^.vo   oo  £vo  so  oo  £   •«  oo^   so  w  JN. 

O  t-»   oooooooooooo   oooo   oo  oo  oo   oo  oo  oo  oo  oo  oo   oo  06  oo  oo  oo  oo   06  oo  f, 

o  oo  oo        oo  oo  oo  oo  oo    ov  o  c^.  oo  oo  oo   oo  oo  o  o  oo  GO    <?\  ooo  ^  o    o  oo 


OO     O  tO  O     O  OO    «o  Wl  I*.  ^  M    Vt  M    ^-  l-^OO   SO     O>OO     *N  t*»   O\OO     >*     «$• 

***  «  **?  w   w   v>  M  *     **   to  N   t^vo   O  *     ^N  O   ^  oo   to  ^*     ^  ^   Os  **"*  N   w  A    ^o   **^  ^o   ^"  w 

<^O   tx  tx  l"*»  tC. oo        oo    ^\  cKoo   ^,  O         C^  w   »H   O   O   O         ^*  ^oo  oo   ^k  ^        &>  O^  o  **  ^o 
l>.t^t>it>txt>.  txtxtxtxtxOO  t^OO   OO   OO   OO   OO  txtN.JxtxlN.tx  txtxtxOOtN. 

<<     OM  ddoOM      Mddww«      d^«^txt>.     "*«o  ^oo  N.\O      *J  to 

^      ""ico  oo  oo  oo  oo  oo       oooooooooooo       ooooootxtxtx       lx(>.txtN.t»,tNi      oo   t>. 

M 

I— ,00  00  00  00     OOOOOOOOOOOO     OO  00  00  00  00  00     OOOOOOOOOOOO     00  00  00  00     00  00 


SB 

•*  -—     -— 

2        **>  ^^  fx\e  vo       oo  oo  oo  oo  oo  CTV*   oo  oo  oo  oo  ov  c>      oo  ^oo  oo  IN.  vo  e?v  ^t" 

'^       oooooooooooo       oooooooooooo       oooooooooooo       oo  oo  oo  oo  oo  oo  oo  oo 


7 

>%  MCtMNMf)  tomflNNtO        OONVOM    rj-vo  |N.^>    t^  '*-v«  N  ^^    «t 

18  •  *0  *t*  ^  T 

S.     2  **>  ^^  fx 


.  q  *    *> 

<9<C*       c>  O   «   6   <>  o  '     >-i   o  rj  ri  rj  IN        MMQOc^d       odoooovotv^o        N  >o 
oo  oo       oo  o  o  ooo  oo        o  o  CTS  o  o  CA       o\o\o>  o--oo   ON      oo  oo  oo  oo  oo  oo        ooo 

-r  rv  W  M  tooo        u^  so  O  N  tfloo        O  N  «n  •*  w  «*•       to\e  OM  NMI^MVO^. 

2     tx^O    O    OO      O  tO   ^   tO    CTVVO     tXJ.        M(J\tOH*tXW^        tOtOtO   *O  I         IT     *        tx   N     ^    tx   *O    ^. 

^•^^v^tOraM  tOMMNMM  NMMM  O    O     0s    O\    *4"    (^ 

OO    OOO  OO    OQO 


CTv«rtf»'*-        O         NN«-"*        *  "t^to 

qvoo\M<(    r>.  .    ^ON'?^^*?  tog 

.    ,    .                   ddd"       2       S  M  SI  fl       Ii  ««A 

NOO  oooo       oo  oo  oo  oo  oo            oo  oo   o  O"  CTV  <?>        o\        o\OvO9>       ON  Ooo 

^•OvOf»tN,t>-         O*  "^^    Ov«o         »Op»w>»vWr»         OO^OOvNKff  w   ^\O 

fTQ^^0?*    "^^^l^*       t>(^Tp!'*'  *^»    P  ^  ^  ^  *T  T*  ^  T^ 

OO  OO    ri.  t>«  tC.  tA.         tx\O    WVO    to  J-*      tOtoNtOTj-rt-          toONMl^N  INOOQ 
CTS        Ovc\ 


APPENDIX  321 


.  .  . 

NNN*     ft    M    M    r5   N    to        i     <(  to  •?>  tn  en         **•  *}•  to  to  en 


-j—        i__ 
"**"*   **"" 


oo  <J>  *J-vo  to  to  rj-  O  M  tooo  u-i  t^  to  t-,vo  Th  «  O  vo  »^oo  to  w  oo  so  O  t»-oo 
to  •<*•  q  <>  tooo  e*NW?Q>"|tor^  NOOTi-o\i^xo  N*  *  oo  ao  t«.  N  N  «  **•  to 
ooOd<>C)d*  ONNNto  to*  to  rj-  vr>  to  to  to*  N«wc5«><*  P»NN  «Aoo 


^        3  oo  oo    «>>  vr>»     ^ 
O  r-H  woo  oo  c 


to  O  >n  «   tovo         NOtoMON 

t^1'?^^  f^^0  »<x?*c>'?cj'^cr 

d^^^ww         MwMpJtn  »o 

N^tNNNN     NNNNNN 


.NONOp»        «il-ox  tooo  "•>       Os  •'t-so  O^to      soootorh 
»-i  scs   •>*•  N    q   N         •*  so    xy-i  rl-  -4-  t-.^     t>.  vn  £>  «^»  *;  to^    so  oo    to  to 
-      -     -     -*     >«--  -' 


totototo 


i>   csj   n    Os  o   M  *     o^oo   MWM  NNcito^co        to"*"  to  ^~  to  ff)       to  ^oo 

tt|N  f»N  M   M   ff  «   (4  NNNNNN  N  M    N    N    N  f» 

ooOtoirivnos       t»>'ooot^O'*'       toxoMMsot^      OOMO'^OOOO  toOM 

I— ,  NNNNNPJ  NNNNrTf*  NNNNNN  NNNNNN  f«Np»t3 


322  APPENDIX 


.  oo  NO  NO  oc   N  ee  «n  ex  MI  r«.   O  oo  t».  w  vo  »j.   «*•  r^  u-ivo  «     os  to  oo  oo  »o  oo  N« 

o  oo  NO  r}-  q  _.  *?  1  w  NO  **•**•*.  9tOvc3'>0.00,P»0'?00.00.vnv^.f-»  ^  ^  ^  *!  P,  1  ^ 

0*6^  H>M    r^-oo  oo  oo  oo  oo    bVoo  oo  oo  oo  ON   oo  oo  oo  oo  oo      oo  oo  o>  c?-,  o-  o-  vo 
ON  ON  ON  Os    ON  ON  ON  OS  Os  ON    Os  Os  OS  Os  Os  ON    ON  Os  Os  Os  Os       Os  Os  Os  Os  Os  Os  ON 

^  *       to  •f'  o  to  M  l^oo  t»-  b»NO        M   IH   »»i  »f-  to  <N)       oo  «•<  to       to  M        ON  e»        to  ON 

o    .  +-  1  *f  °?  T»  't  **?*>*>*?•*!*    T1  1  "0  *?  *?  P       c>_t7-oo)oo  "P00, 

•-r   o\       Q  Q   Os  Os  osod  oo  oo  oo  ON        osOsbVQ°OQ 

'-'ON    O  O  Os  ON  Os  Os  Os  Os  ON  o\    Os  Os  Os  O  O  O 


.  NO    O  ON  <NJ    tOOO    t^  0  ">          O1^    I*.  •*•        00>^NMNO 

4JfTl>C>       "^Q^^jPH*    ^"1^  '^•Q'C1*0*    *^HtQHlw?f^ 

—vOQ  O^OOOOOOOO          VO  VOOOOOOQ  OO  OO  OO  OO  ^O    <J"i 


OOvON          OON 


O   «*>  ONVO    M    O  oc  oc  NOV°O 

*"^*  **9     P    ""»<*">*•*    ****  CO   C^  N     tO 

_    _    __  ,_ -    _  **£  oo  t^  O^NO 

ON  ON  ON  ON  ON  ON  ON  ON  ON  ON  ON  ON  ON 


03        »^  VN.  *f*  tnvo    *i*  O  O10  O    N  ^O    *o  ON  ON  tnoo    to^O^N  NMOMf^o^^N 

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APPENDIX 


325 


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326  APPENDIX 

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328 


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APPENDIX 


329 


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330 


APPENDIX 


M  O 


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APPENDIX  33i 

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33* 


APPENDIX 


j  •    ^  *^i  w*  w  w  o  0    t^*  4*  **  vo  tx  ^*    4-  q  *^oo  ^  i   ^ 

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APPENDIX  333 


<>oo  so  so  so  r-^*  to  4  to  4sd  so  *  so"  vd  >o  «A  >A-I-* 


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334 


APPENDIX 


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336  APPENDIX 


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a 

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f*.     3     SO  SO  W1  <n  IO  *O     V^SO  SO  Vi  *O  SO      *O  V\  *O  ^  ^  ^*     ^"  to  tO  ^  tO  to     ^    SO  tO 

^MOXVO      so   M  so  so   O   "">        MO  wso  «o  ">       to  toso  oo  ^  N       so  m  M 
S!       eat^l*    OOtosO'J-  ox^    tooxoxOtooo^    t^tooooo^-oOjn     Tt-t«N 

9   ^H  t^  >OSO    SO  txso  SO  SO  *O    *O  *A  toso  *A  ^    4"  "^  *O  toso  so    SO  SO  SO  MJ 

vt  ^5  so  so  so   so  so  so  so  so  so   so  so  so  so  so  so   so  so  so  so  so  so   so  so  so  so 

.;O^««N"*        O   O  so   tooo   to        toso  so*tr>M         OO'l'4'fto        Mtvx 
HN  M  q  oo  oo  ^   soso  ^xOx>H  to^    o  *too  *r  t>.so  *    M  N  oo  "rso  so  ^    to  to  q 

"S  SO  SO  so  SO  SO    SO  so  so  so  so  so    so  so  so  so  so  so    so  SC  so  so  so  so    SO  so  so 

C  to       O  t^  txso  soo        wr*oosoooOx       ox^OvriNM        QMIOW 

ClJM^      tOt^OXHltosO*      w    tooo    N    to  ^^A      *O  OX  to  N    to  to  £      to  O    N    N   ti  ill    m 

i«5  SO         so  so  so  so  so  so          so  so  so  so  so  SO          so  SO  so  SO  so  so          so  so  so  so  SO  SO  SO 

O  oo   o  t>-  M  oo  oo 


^     O  A  f^SO     OX  OX  tO  OX^  OO     M 

**•*        »tt      ?      •      t*  t      •' 

v.  *o   ^T^r^T^*o^  TT^O   ^^J"^~   *o  ^  to  *<f  ^*  *o  *o  to  >o  ^t 

so  so  so  so  so  so  so  so  so   so  so  so   so  so  so  so  so     so  so  so  so  so 


Z   N  to  os   o  p»  t~.oo  to  r«   M  ts.se  OXP»TJ-   *"i'*'M'*19L   *"*  *vv°  *•»  "^  *^  **•  >. 

s  4—  .  ,  .  *  .      ?  .  P  *  t         tn*  *       i.**_i.'_i.   i-iA,p5«>ca 

SO  so  SO  so  SO  so    SO  so  so  so  so  so    SO  so  so  SO  SO  SO    SO  SO  so  SO  SO  so  SO   "Q  72 

§  1 

CO  HL, 

J=5    .,     *  +* 

SO     1^00     OS  O     M     N    tO  *  IOSO     txOO    OX  O     *    N    tO   »f  »OSO    tXOO     OX  Ol  M     Ml    P 


APPENDIX  337 


M  fx  l».se   os  "•>       «J-  »  O  00  w  oo        M   os  to  «o  M  so        to  lv  Os       e»  ui       N  N  oe  oo  oo 
*0  ""*  't"  *?•  *0  **    'T  "0*^3  Q  P,  P       **!  "?  P,  ""I  °^  o      *T  "}"  *,  41  ^P0    M,nJ~ereT's5 


.    Os         >rt          to  os  M  SO  ON  WSO  soOM          00    M    O  so    «>  r»  OO"*        OOOO  OsQ 

OM         O         OsoVost^*       so^Av^^Atov^        lA  ^-so  sc  oo  oo        oo   t^so         Ix  tx  M  co 

Zf*  ^  M,MMW  M^WMS^  MMMMMM  *^^S  S2 


M    «    d    O    H 


OOOM       oo«iOi*oooo        ^ 

°^V<J    T»     *°'it>P^^*      Tf 

ododoo*     tC.«Arj-«'iWT}-       d 


«n«o^-o«  ooNtoO^os  M  tooo  <Jf««  OoowOeo  JJM 

#    *  *>  o  ^  "^j^jif  <j>  *  *>  °!  ^  "?*  *?  &•  'f  ^  «*  T«  *;  ^  ^  *>  *i+-»  1  *? 

i     li        «A  »A\o  •«  >O  «n  »A  \r\V3    w  iA  xAi  «Avo   "^vo  vo  t»-*O  vo  vd   ti.  tx.  «o 

<NN    NNNNN  NNNNNM  N  N  «  fi  N  «  *»NNNf»  Nf» 

HH      M  M  M  M  M  MMMMHM  MMMMMH  MMMMM  MM 


G"5M         NNNNNm    m»-T>ri««r>    >n»\o*Ol>.tv   vovivl^ 
2.NNN          NNNNNN     N«NNN«     «NNNNN     NNNNNC* 
•   *^M.  M  M  MMMMMM      MMMMMM      MMMMMM      MMMMMM 

O 

P^       <ii        ov  O   9\  >ooo  tx       MIMVO^OMO        M\O  uioo   MO        M«OP»MNOO       oo        «om 
3      c       ^  o  ?  *?^>  *      >0«rt01tN<t     ^  »>  "t  •?  *>"?       T^  *>  1  *J  *?      *?      "t «? 

g  »     ^(^oooooooo»ooc>(>(>,d6*     ddMOOO*     O«>-»>OOO*     O         MOO 

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J  MMMMMM      MMMMMM      MMMMMM     MMMMMM      M     MM 

7 

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O        Jgootxto        »^>N\oootn  vri^     co  N   vn  e>  N   t^-j,     •*  •*  Q   N   ««  ^^    OO   <>  ON  ^j.  ,|.  OO  •* 
**    ^M<>O*    e>MdC)de>N      odc»s(>  <>od  r^.       t^-oo  o\ovON»v      ooooooox  2^« 

'    ^SMM      HSMM^M      M^MMMS      MMMSSS      ZZZZ         2M 


MMMMM  MMMMMM  MMMMMM  MM 

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^M  MMMMMM  MMMMMM  MMMMMM 

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SO  OS  COOO     tO  ^     Q  OO    O  t*>  VS,   M  *A  tx  O     tOSO 

f^    O  SO    O    Is1*  ^  t*»  SO  *  OO  OO  M    to  C4  ^  *^  f^    ^*  SO    O^^^  j 

b     M  MMMMMM  MM  MMM  MMMMM 

M  MMMMMM  MM  MMM  MMMMM 


m    X 

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338  APPENDIX 

P»    «£  fx  «*•  p»  NO        OOtxu^M^N          >r>  tx  oso    tx  pj          M   pj         p)    M  so         toso   tx  PJ 


XH    NO    NO  NO  NO    NO    NO    NO  NO    NO   NO    NO   NO    NO  N£)    NO   NO   VO    NO    NO  NO    NO    NO  NO    NO  NO   NO 

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Q  NO  NO  NO  NO  NO    NO  VO  NO  NO  NO  NO    VO  NO  NO  NO  vo  so    NO  NO  NO  NO  NO  NO    NO  O  S3  NO  NO  NO 


txso   nO  oo   Q 

pj  to  «  q  tx  q 

so  NO  NO  NO  RNO 

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£  B! 

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Q"  ^ «c,N««r,««c«NWW;g^ 


APPENDIX  339 


oo  to  pJ  ve  «  Q  tOMOeooow^  vo  N  oo  vo  w  to  w>  t-%  oo  r^oo  M  ui  moo 
o»  9  "?  *?  *?  ^  Q  *  1  ?*  Q  9  "0  *>»  °JV00,  ••;  c*00,  °^»  *}"  N.J^  <"J  °^  *} »  N  oo  oo  q 
Q*  to  co  *4"  *$•  N  N  N  n  M  O  O  d  O  M  p"  »-i  pj  pi  pi  pi  to  to  <""  "^  *t*  ^"  O 


.    vivo         „,,  »A  ri-  ••*•  co        vo    O    to  ui  tv  w>         MVOQoOMrt-         O    f>OO          »•>.  O          X  °° 

>  vo   t^.^     to  ,_  Ptot>fi*     u??'?ver1'^'  *?*     p  oo   O   to  pj   o->^     t^°°   p> .      ft  N         M   to 

^    M    w           ^  *^"  totOto^          ^-tOtopitotO          r^i  N    ro  TJ-  u-i   -4-          ^•^^t'          ^J'^          *AW 

^<  W          M 

OO  O  ^  Q^  to     O  t^vo  OO  OO  PJ     to  to  ON  ^.  \ft  l^i    OO  O  to  O  t*  OO     O  w  tO  O^  *O  O 

^MvowinVo  l^^to^-vo^    CTvvo^ooOHi^    oqoor^vooo^vovtsq^-Of* 

o  oo   t>.  ti  .^.vci  *    vo  vo  vo  oo   o>oo       ooooooooosoV      ooddddd        oVdwdw^o 

O000o"0  000000         OOgOOO         o««5SM         O^5MSwO 


<joo"o      oooooo      00*0000      COOONO'-IW      H  S  S  M  M      So 

^    H?  )?  2"  M   2   o"o  "§  "o        ^O   O   MI   S   ©''o         O*  O*^  S'o'o'       'OO'O'M'O' 


D 

3    ^-<(      u\  u-i  «rt  10  >n  *f  *      ^f  »f  TJ-VO'  vo*   t"«»      t>.vo  vo"  vo    t*>\o  4>      t>-vo    «A 


^vovnt^oONO         t-."">tovoOvf^»     meow          MOO«O 
tod  d>rfvot^dd*ooc?>cvoooooo       od^d"*~fil».«»» 


^  oo  O  ON  ; 

<5  o1  o  o"  o      o'  o"o  o"o  5^  5"  o '  o  «  «  «   M  M  S  S  M'    M'^  "So" 

b  oo  o>»  to  q  to  to  to  tOju  to  i>.  o  N  vo  ^^  ^0°,  ^0  ox  q  N  4)  *0°°  ^"  'f  "C1  P  *  P  oo 

.M  OtS-l^n<NO         "o         "os  P?  woo  ^'*  -  —  ^  "  ^    "  ^  *" 


Osvo    O    O          OO    »rt  't-  r^OO    «^>         VO    irt  to  P>    «flVO          VO    O    O    O    tO  OS          ">  «OOO  VO    »tVO  .^ 

c  j_  t^vo  P.  ^^    *  'foo  N  11  oo  ^  oo  ^j-  q  ^>vo  ^>jj    «  os  q  ONOO  t^.^    *>*>q«oovo     ^  g> 

os  o\  os  os  Ov  os   os  os  os  os  Ov  os   o\  os  o\  ON  ov  os  *O  •** 

S  "o 

S>  a 


340 


APPENDIX 


10       tn  <*  wi  t*»  p*ao       vo  f  v*  &,  *»•  «*•       O  N  ovoo  to  *o 
T*    *?"  T   P  P  M  ?»   ^  *?  'f"00,  *0  °?t    *?  *0  M  f  ^  P 


-  to  10  •<    vo 


P  # 


s  O        M^ 
1  »    *^  P 


r-      -     •<  .  .o 

(_j  o   NO  vo  so  vo  vo  so   NO  NO  so  NO  so  so   so  so  so  so  so  i>. 

£  °°  o\  O   t~»   Q  NO  "ioo   to  to  to  M  os  O   oo  rv  tx  M  N  «•>   to  w  os   os   t^oo 

o  *j  fooo  <»  oo  4—  *r  *i*  1  *i"»  f  *?•  1  *°.  *!  *^**  °°,  P  T*  ^t~  T  *J"*  1  P  *<^1i.  ^     p  >j 


oo  oo   oo 


vo  r»  4-  o\  O  « 


*j  ^o  N  ^t-  o 
O  os  vo  r^  <s) 


«ooo  O  N  OO 

«n  «^  >«  WOO 

oo  oo  oo  oo   tx.       oo  oo  oo  oo 


O  ^ 


~»    -t^o-  r>«  P 


SO     M     tx   M    OO   OO 
Os  (^  tx  OsoO 


^3         to 
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I 

c/3       v  oo  O        l~-oo  OONONM        tovowx^r*       SOOOONIOMOO       ooowiototo      oooo 

J-j     CJ  <^OO  ^   OS  «^-  O>  VOSO  ^n   O  w  *<  ">  «  'J'^f   OS  O  tOSO  M  SO  ^   NO  5  M  t^-OO  ON     tO NO 

O        •— i  vovo         tovovotovovo         vovovovovoio         tovotovovnvo         vovovovovovo         vo  vo 

z 


o\dsdoooo 


o\dsd 

vo  vo\O 


.         ,  .         . 

«wM«tsid        MwwtoNw        w       sdo 

NO  NO  NO  NO  NO  NO    NO  NO  NO  NO  NO  NO    NO    VOVO 


^     OS  10  NO  NCxtOONMOO  WOOtOMMQ  MVOOOVOI^SO  SOM»SJtN.ONN<sJM 

(^    vo  Os  t>.^      M  OO  OO    to  II  so  ^      tOOO    q  OO    Os  VO^      ^^PP^^i*      P^^PTPP11? 


.  *se  oo  so  to  «*-so  so  so  ON  O  oo  o  M 

JJtOoooo^  toOOvrfooso^  .,    <"s>q^-OO 

«J*  t>.  ri  »C.  oo  oo  t^.  tisd  NO  t>.sd  t>.sd  vo>osio          -r-       tototo 

UM  NO  so  NO  NO  ^O  so  NO  NO  NO  so  so  so  NO  NO    so  NO  NO    so  NO    so  so  so 


c*    ^^I^P*    ^^t^0^* 

oosdtxNONd       sd^*i-to*j-T}-       ^-Ti-^j-^-iOT}-       io«i- 

so  NO  NO  NO  so    so  so  NO  SO  so  so    so  so  so  NO  so  so    NO  NO 


M    M    t«  r*-  VONO 

o  «r  "^so 


_rt  * 

«    6C  S 


APPENDIX 


.  to       oveo  f.  O  vo  H        «o  to  vr>  H  O  «o      oo  t-s  O   «  oo  M                  N  oo  N  to       £  £  "I 
O  so  _.     vovooOO-NM^VOvosoto^-w^     t>.T(-wtotoO$.|_4_*'^00Ovr>$     O 

OO         OO  OO  OO  OO  OO  OO         OOOOOOOOOOOs         OS  Os  Os  OS  Os  Os                       Os  Os  OS  OS         tTs  sTsoo 

.tOMM         so           t0^t>^-          *  O    Os  tOOO   VO        NOOtON^J-Os        VO  OO  OO          00         00    w 
»    t^.  t^  O  *,       M    j_  80  SO     M     tO*,     NO     M  SO     VOOO    tO*,       t^OO     N     'TOO    «Ojj       <SJ     pj    «.j_OO 

-Sos^O  •*  NtO^-TJ-  *••*•*  VOSO  ti  so  t^.00  00  so  t-»  00  00  00  00  OOOs 

Z  **•  t^oo       oo       oooooooo       oooooooooooo       oo  oo  oo  oo  oo  oo       oo  oo  oo       oo       oot-» 

O  *n  *  os  o  M        M  tovo  ^t-oo  oo       vooo  WMNSO        MOQNOoo       "S.1"^  vooo1 

sJsdvosdsot>.sO  vosososososo  OOOOOOOOO\O\  ddddOO  OsOsOsOt<"> 

•                          tOtOVO^tO         OOOOOOOOVOOO           voOsOtOVOM           txVOP>O  ^T1  "*                °5.  ^ 

^  ._~  .  Oto^toM*  toto<t"O^  ****  vo  oo  o  N  ^"  o*^  rx  to  <r  o*0*;  *^#  .  . 

j^tovovoto  voMMso^ts-N  *°MV0^^;vo  Jo  to^-'w  N  t>  oo  ^  *2  12  J?V§  eo 

EJ  so  so  so  so  so  so  so  so  so  VO  t^  t^OO  ^^  t^i  l^  t*»  t^»  t^»  t^«  t^  VO  VO  v«O  t^»  t^  t^OO  so 

-RAILROADS 

•  ,  OO    H         vovoOstOT*-N          vosOOOOOVOVO          to  ^VO    MQOs        oOOsVoOvOOs        0°.?^ 
Q    Os  t^»      t^vo    OsQ    tow.     00    O"">  Ovso    to^      O  00    toVO    OS  Os^      N  OO    vo>O    to  if 
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>—  ,  t^  i>.  ts>t^txt»>iv.t>i  t»>r«.t>.i^i^tx  txt^t^i^i^t^  ts»i-^t*>t^t>. 

i 

^t^t^WOOOO  WMVOOs  VOVO  M  O  tO  M  tO  P»  VOOO  O  O  J^  O  2.  S>  H?  l^'S'l 

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5ososoVo\e5v  dst«.  t~.oo  so  so  vo  t>.oo  r--oo  ^  oo  oo  oo  t^  (^  t^  J^^S.  S  S*i^ 

Os  vo  vo  to  O  M  OSOOVOIV  100st>.0000q  00^222°°"  EL  Ssvo 
**  ~  M  toso  fsl  to  Os*  1000  Os  «*._  ._*  -4-  Os  OS  Os  vo  ^-0  OOOOoOtOW^  «O  OSM 

°*  fiMfsipiNtslrJwwts;  «ddO«O  OOsOOOO  Os  IOs 

<  OOMOOOOMOO  MOOOOOO  OOOOOOOOOOOO  00^00000000  t>.  00  ts» 

.•OOVOVO  M  P»  t^  Os  0  «  to  •*  OS  to  00  OS  «<»SrirEr8  2,so^8  O^'o  S-^-vo" 
JJtOOOOjd  wOOssOt>-  to*.  OIHXov°T}'v*)>o°vy...*  .. 

S'S.^^.  ^ll  ti  ti  li^.  £  £*£.*£.  *  "S.^000000^  <S  <S  <2  <S  oo  oo  oo  £: 

.  l^.  -<t-so        to  M  M  M  oo   •<!-            O  tooo  so  N       oo  N  O       ^O  to       tooo  oo^                 £00 

w  oo  oo  oo  *  ds  O  O  o>  dsoo  *  ds  ov  os  oVoo  oV  o-  o\  oo  oi  <?j'S.'S.  oo  ^S. 
fc  t^  t^.  t^  txoo  oot^t>-t>.  ts>t^t>.t->t^.  r»  c*  Is  l>.t>  c^r 

sotovoH-M         VOt^NtoQto         O    «0  SO  00    Os  Os         O    to  MVO  to  WJ        V2s;S<50?S 

c  ,  oo  «?ososvo~.  o  «^-osS  o.  "^oo  o  o  oo  f-0  q  q  **•«>  i  <?*  9?°°.  9  °°.  <? 

00    ^.  t^.  t^.  ^         K.VO  so    to  ^.  (s        vosoN.^.f.f^        °°t^f^t^  ^^        'l?.  t^'S.'lS.  l^ 

t* 

•Sunday 
fHoliday 

342 


APPENDIX 


O"  ^  vo  *  f^  **^  *n  O  N  W 

;   .  Ir  .   •   ... 

V  in  in  ^  to  to  to  O  OS 

Q  tx  Ix  tx  tx  tx,  tx  IxVO 


tx  OV  tx 

oxxo   in^   ,1. 
tx  tx  ^-  «nv6    to"      06    M    M    OXOO    O 
vo  vo  vo  vo  ^  vo         Vivo  vo   *n  *nvo 


tx  Ov  tooo        oo   tx 


N  vo  >n  r*-  ^J-oo  oo  oo   Q 

JO    Ov^  OO    'J-  ^  w    to  O    ^ 

Ov  CN  OV  O    O    O    O  too* 

O  vo  VO    tx  tx  tx  tx  tx\O 


tx  |x  tx\O          VOtxtxtxtxtx         txtxtxtx  IxVO 


.    ««         f»    •*  Ix,  txOO    **•          O^OtO^O         VOVO 

*^#    oqooMqxjfVOTj-wtoq  to^    o>  to 

5*  >A       vovovn4-toto        pi^j-in>nvovo         tnvov 


M  tOOO     ^   tO  O     M 


00    O 
N  VO 


t!  ^  O  **  to       v\  Q  o\vo  ^-vo        ^oo  O  w  \o  N        o^oo   tovo  ooO        to  o  I"*  to       OO 

JJ  VO    ON  O    tx^      OtTj-NVOMM^OOONOXtxNq^      MNOOVr>O\  rj-^,      tx  tx  M    to.[T     tx  pv 


O   ov  (4   H   M  _ 
tOMNNN 
VOVOVOVOVO 


m  o  O  tovo   vo  ox   N  «*i  f«   oo  oo 
vi  ui  ix  M  tx^  txoo  ._  to  to  «n^  ox  tx 

NfiNtO^t-        VOVO  txtxtx        VOVO 


H-»  vo  vo  vo  vo  VO 


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to  <i-  mvo  »x.oo 


ox  rh  to  N  tx  ^^    PI  rf  ox  to  ^  >H  ~     tooo   O  oo  vc  oo  ^     qtoq 

MMMHMM  WMMrJNN  NHtOtO^*T^  ^^^tni 

vo  vo  vo  vo  vo  xC         vo  VO  VO  VO  VO  VO         \o  VO  vo  vo  VO  vo         VOVOVOVO     *O     •- 

§  "o 

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APPENDIX 


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INDEX 


"A.  B.  C.  of  Stock  Speculation,"  28 
Aetna  Fire  Co.,  105 
Adamson  Law,  201 
Agriculture,  Department  of,  47 
Alexandria,    Egypt,    panic    1907, 

140 
Amalgamated  Copper,  35,  50,  89, 

221 

Anaconda  Copper,  223 
Auction  Bridge  chances,  145 
Averages,  See  Stock  Averages 
Babson,   Roger  W.,   52,    197,   His 

theory,  53 

Barrens,  237,  250,  251,  253 
Baruch,  Bernard,  M.,  66 
Bear  Markets,  45,  254 
Boston  News  Bureau,  35,  222,  233 
British  Company  Law,  84 
British  National  Debt,  199,  2OO 
Bucketing,  77 

Bull  Market,  31,  32,  44,  256 
Cammack,  Addison,  149 
Carthage,  163 
Chile  panic  1907,  141 
China,  banks,  167 
Clearing  House  Certificates,  121 
Consolidated  Stock  Exchange,  271 
Coolidge,  Calvin,  257 
Coxey's  Army,  214 
Curb  Market,  84 
Customers,  78,  259 
Davis,  John  W.,  257 
Definition  of  the  Market,  65 
Dolliver,  Senator,  8,  46 
Double  tops,  32 
Dow,  Jones  Averages,  7 
Dow,  Charles  H.,  21,  His  theory, 

4;  True  of  any  market,  14;  His 

first  description,  23;  His  panic 

dates,  25,  269 
Economist,  London,  141 
Elijah,  Mendelssohn's,  112 
England,  Bank  of,  167 
Esch-Cummins  Act,  191 
Farmers',    pool,    48;     and    Wall 

Street,  47 


Federal  Incorporation,  83 

Federal  Reserve  System,  121 

Flood,  Mississippi,  33 

Floor  trader,  76 

Fluctuation,  Daily,  6 

Ford,  Henry,  165 

Forecast,  successful,  32,  252 

Gamblers,  67 

Gambling  and  morals,  265 

George  III,  anecdote,  79 

Gould,  Jay,  anecdote,  67 ;  268,  270 

Greeks,  165 

Hamburg  panic  1907,  141 

Harriman,  Edward  H.,  18,  212 

Harvard  Chart,  122,  208,  238 

Hill,  James  H.,  18,  141,  212 

Huxley,  Prof.  T.,  194 

Interstate  Commerce  Commission, 
192,  193 

Jerome,  Jerome  K.,  10 

Jesurun,  "waxes  fat,"  216 

Jevons,  William  Stanley,  I,  116 

Keene,  James  R.,  94,  107,  147, 
l82,  221 

Lefevre,  Edwin,  II,  148 

"Line,"  of  accumulation  or  distri- 
bution, 6,  32,  82,  172,  250 

Lincoln,  Abraham,  217 

Listing,  82 

London  Exchange,  82 

McKinley  Election,  82 

Manipulation,  minor  importance, 
49;  cannot  make  primary  move- 
ment, 50;  Where  possible,  50, 

51,  234 

Marathon,  165 
Margins,  266 
Marx,  Karl,  163 
"Matched  Orders,"  85,  229 
Michigan  Southern  corner,  Il8 
Morgan,  J.  Pierpont,  17 
Movement,  Daily,  6 

"          Major,   5,   40;   dates, 

43-44 

Primary,  see  major 
"         Secondary,  5 


National  City  Bank,  222 

Nelson,  S.  A.,  28,  29 

News  Collection,  236 

Non-Partisan  League,  150,  2l8 

Noyes,  Alexander  D.,  1 12,  161 

Overend,  Gurney  panic,  26,  Fail- 
ure, 118 

Panic  Years,  dates,  2;  24 

Pennsylvania  Railroad,  113,  256 

Persians,  165 

Piez,  Director-General,  202 

Pratt,  Sereno  S.,  128 

Prediction,  1903,  98,  99;  based  on 
all  knowledge  available,  42; 
correct,  61,  62,  63;  a  bad,  138 

Punic  War,  163 

"Railway  Business  Association," 
247 

Rea,  Samuel,  113 

Rhodes,  Cecil  J.,  17 

Rockefeller,  John  D.,  Jr.,  232 

Rogers,  Henry  H.,  8,  41,  223,  231; 
Anecdote,  63 

Rome,  164 

Roosevelt,  Theodore,  160,  21 1 

Rothschild,  anecdote,  94 

Sage,  Russell,  anecdote,  94 

San  Francisco  Earthquake,  44, 
lOi;  Fire,  102,  103;  Loss,  105 

Sherman  Silver  Purchase  Act, 
ii3,  214 

Short  Selling,  8l,  272 

Sims,  Admiral,  198 

Somerset  House,  84 

Specialists,  79 

Speculator,  professional,  70 

Spencer,  Herbert,  194 

Standard  Oil  Group,  8,  41,  64,  232 

Steel,  see  United  States  Steel 

Stock  averages  explained,  4;  Suf- 
ficient in  themselves,  40;  A 
unique  barometer,  56 

Stock  Exchange,  closing  of,  174 


Stock  Exchange  Governing  Com- 
mittee, 258 

Stock  Market,  bigger  than  mani- 
pulation, 41 ;  always  right,  45 ; 
never  thanked,  46 

Stutz  Motor,  corner,  12 

Swings,  major,  40;  dates  and 
duration,  43-44 

Theory,  Dow's,  see  Dow 

Thermopylae,  165 

Tips  and  Tipsters,  238 

Trader,  an  intelligent,  69;  pro- 
fessional, his  advantages,  74 

Trading  methods  of,  36 

Transportation  Act  of  1920,  191 

Trinity  Church,  IQ 

Undigested  securities,  no 

United  States  Steel,  52,  225,  244; 
its  value,  93 

Unique,  applied  to  Barometer,  56 

Unlisted  Stock,  82 

Vindication  the  theory's  greatest, 
196 

Virginian  Railroad,  232 

Volume  of  trading,  136,  177,  205 

Walker,  Guy  Morrison,  202 

Wall  Street,  Extent  of  its  knowl- 
edge, 46,  47,  58 

Wall  Street  Journal,  The,  contains 
all  Dow's  theories,  28;  8,  223, 
252,  253,  255,  257,  269 

Walsh,  Dr.  James  J.,  168 

Wash  Sales,  85 

Watered  Labor,  87,  2O2 

"Water  in  the  Barometer,"  87 

Weather  Bureau,  56 

Wells,  H.  G.,  169 

White,  William  Allen,  215 

Wilson,  Woodrow,  191 

World  War,  251 

Wormser,  Louis,  131 

Xenophon,  165 

Xerxes,  165 


JJ.CSB  IIBRAR* 


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